Volkswacht Bodensee - China growth slumps to 0.4% in second quarter: official

GDP for the April to June period in the world's second-biggest economy was also down 2.6 percent compared with the first three months of this year, the National Bureau of Statistics (NBS) said.

The slowdown comes after China's biggest city, Shanghai, was sealed off for two months as it battled a Covid-19 resurgence, tangling supply chains and forcing factories to halt operations.

Beijing has dug its heels in on a zero-Covid policy of stamping out virus clusters as they emerge with snap lockdowns and long quarantines, but this has battered businesses and kept consumers jittery.

"Domestically, the impact of the epidemic is lingering," the NBS said in a statement Friday, noting shrinking demand and disrupted supplies.

"The risk of stagflation in the world economy is rising" as well, the statement added, noting that external uncertainties were growing.

China has only logged a GDP contraction once in recent decades, and analysts expect the latest reading will drag full-year growth to about four percent, slashing earlier estimates.

Industrial production rose 3.9 percent on-year in June, up from 0.7 percent in May as Covid controls eased.

Retail sales picked up 3.1 percent, after plummeting 6.7 percent in May.

The urban unemployment rate was 5.5 percent, down from 5.9 percent in May, said the NBS.

- 'Still unstable' -

The data comes in the wake of mounting challenges in China's key real estate sector -- which by some estimates accounts for a quarter of gross domestic product -- with weak home sales in recent months.

A growing number of homebuyers are also refusing to pay their mortgages over worries their homes will not be built on time.

Although there are signs that China's economy has started to recover since Shanghai eased lockdown restrictions in June, analysts expect that pressure on consumption will likely persist.

The news piles pressure on the Communist Party's leadership, which is gearing up for its 20th Congress, when President Xi Jinping is expected to be handed another five-year term.

Last Thursday, Premier Li Keqiang said the foundations for China's recovery were "still unstable" and called for more work to stabilise the economy.

Economists have long questioned the accuracy of official Chinese data, suspecting that figures are massaged for political reasons.

N.Fournier--BTB