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China set to post return to growth after easing lockdowns

  China’s economy is set to post a return to growth for the second quarter, with a range of indicators due Thursday to confirm the upward trend as the nation slowly climbs out of the virus-induced slump.

Gross domestic product is forecast to have expanded 2.4% in the three months to June, according to the median estimate of economists surveyed by Bloomberg. That reverses the historic decline of 6.8% in the first quarter compared to the same period last year.

The steady resumption of growth in the Chinese economy will be a signal for a world still mired in an accelerating pandemic that the virus can be contained and output can recover. At the same time, China remains vulnerable to the effects of demand-sapping containment measures elsewhere, and local consumer confidence is fragile.

“Since mid-March, China’s economy has staged an impressive comeback, bolstered by pent-up demand, a catch-up in production, a surge in medical product exports and stimulus in both China and other major economies that has bolstered demand for goods made in China,” Wang Tao, chief China economist at UBS Group AG in Hong Kong, wrote in a note.

Industrial output likely continued to lead the rebound in June, jumping 4.8% from a year earlier, survey results showed.

Fixed-asset investment in the first six months is expected to decline 3.3%, a much slower pace than previously. Retail sales, the weak link in China’s fragile recovery, is projected to have grown for the first time since the pandemic, expanding by 0.5% on the year.

However, for the first six months of the year, none of the main indicators are forecast to have recovered the level they were at in June 2019, showing how hard it will be to climb out of the deep slump. GDP is forecast to have shrunk 2.4% compared to the first six months of 2019.

The pace of China’s recovery will depend to an extent on the effectiveness of the moderate stimulus measures rolled out so far. The government has earmarked a record 3.75 trillion yuan ($534 billion) in special local government bonds this year, most of which will be channeled to infrastructure projects. However, infrastructure investment has so far remained a drag on growth, while property investment is expected to have returned to expansion, despite Beijing’s reluctance to further support the property market.

“The economic recovery has been slow domestically due to the unexpectedly slow kick-off of infrastructure investments,” said Iris Pang, chief economist for greater China at ING Bank NV. “The slow growth in infrastructure investments is dragging on growth, and is very damaging on future economic growth as jobless rates would increase with a slow recovery, and then will feed back into the economy with shrinking consumption.”