Morgan Stanley China Economics: 2Q Tracking GDP Softens to 4.4% on Weak Domestic Demand
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Morgan Stanley projects China's second-quarter GDP growth to soften to 4.4% year-over-year, down from 5.0% in the first quarter, primarily reflecting subdued domestic demand. Consumption growth slowed from 5.2% to 4.0%, while fixed-asset investment expansion eased to 3.8%, dragged down by an 8.0% decline in real estate investment. Although exports maintained resilience at 6.5% growth, net exports could not fully offset domestic weakness. Industrial production growth moderated to 5.2%, and the services production index decelerated to 4.8%.
Inflationary pressures remained muted, with CPI rising just 0.3% year-over-year while PPI fell 1.2%. The unemployment rate edged up to 5.3%, adding to labor market concerns. Morgan Stanley anticipates the PBOC will implement a 50-basis-point reserve requirement ratio cut in the third quarter. Fiscal authorities are expected to accelerate special-purpose bond issuance, though infrastructure investment upside appears limited. The full-year GDP growth forecast has been revised down from 5.0% to 4.8%. Risks remain tilted to the downside, stemming mainly from the property sector and employment conditions. Third-quarter policy effectiveness and property sales data will serve as critical monitoring points.