China's economic growth slowed sharply in the second quarter as the impact of Covid restrictions took a toll.
GDP in the April-June quarter grew 0.4%, which was the worst showing since 1992 bar a 6.9% contraction in the first quarter of 2020 when Covid initially struck.
Economists had forecast a 1% gain after 4.8% growth in the first quarter and said though weak, there was some hope the numbers might be the low point for the Chinese economy, especially with stimulus now likely from the government.
For the first half of the year, GDP grew 2.5% from a year earlier.
"China's economy has stood on the edge of falling into stagflation, although the worst is over as of the May-June period," said Toru Nishihama, chief economist at Dai-ichi Life Research Institute in Tokyo.
"You can rule out the possibility of a recession, or two straight quarters of contraction,"
Shanghai, which bore the brunt of the lockdowns saw a year-on-year contraction of 13.7% in its economy.
Official growth targets for China this year are for growth of around 5.5% but this will be hard to achieve believe many economists, especially if more lockdowns follow another outbreak of Covid,
"We believe markets have become overly optimistic about growth in H2," Nomura analysts told Reuters.
Other indicators confirmed China is struggling to recover from the lockdowns imposed in March and April.
Secondary industry - largely a manufacturing measure - saw growth slow to 0.9% y/y, from 5.8% in Q1, again the weakest since Q1 2020, said Pantheon Macroeconomics.
“Growth was largely reliant on the primary sector, with a more modest slowdown to 4.4% y/y in Q2, from 6.0% in Q1, and “only” the weakest since Q3 2020, as high commodity prices provided some support to the extractive industries,” it said.
“The miss versus consensus largely reflects doubt over the willingness of China’s authorities to release bad economic data, rather than a conviction amongst economists that growth wasn’t so bad.”
Zero-covid was the key culprit for the quarterly weakness, Pantheon said, adding that covid cases are also edging higher once again, raising the risk of renewed lockdowns.
“Reaching the 5.5% growth target looks increasingly implausible,” concluded the bank.
ING added: "As we believe the economy has bottomed out, we are revising upward China's GDP growth rate for 2022 to 4.4% from 3.6% previously.
"It is still slower than the government target of 5.5% for this year.
"Unless we see a lot of infrastructure being put into construction activities, we believe that it will still be challenging for the economy to reach 5.5% growth."