by Ellen Zhang and Kevin Yao

BEIJING (Reuters) – China’s economy slowed in the second quarter from the first, a weakening that could continue for the rest of the year, according to a Reuters poll of 82 economists released on Wednesday.

China’s gross domestic product (GDP) is expected to grow 5.1 percent in the second quarter, after expanding 5.3 percent in the first, a stronger-than-expected performance.

Expected growth in the second quarter would be the weakest since the third quarter of 2023, suggesting an increasingly significant slowdown.

In the third and fourth quarters, economists polled by Reuters expect growth to slow to 4.8% and 4.7%.

Overall, China’s economy will grow by 5.0% year-on-year in 2024, according to the median estimate, but the pace of growth would slow to 4.5% in 2025, as the real estate crisis and uncertainties over employment prospects weigh on demand.

Official figures for second-quarter GDP will be released on July 15.

Measures to support the economy, which is currently benefiting from solid exports, could be strengthened if activity continues to slow, analysts believe.

Investors will be watching next week’s party leaders’ meeting for further guidance, with some advisers predicting Beijing could announce new tax and budget reforms to boost revenues and clean up heavily indebted local governments.

“Despite the real estate crisis, the Chinese economy benefited from robust exports in the first half, driven by real estate-related re-arbitrage and measures,” wrote Ting Lu, chief China economist for Nomura, in a note published Wednesday.

The economist expects growth to slow from 5.0% in the first half to 4.2% in the second, “unless Beijing strengthens its support by accelerating the construction of housing sold off-plan but not yet completed,” he adds.

In May, the government allowed local government-owned companies to buy unsold homes, while the central bank set up a 300 billion yuan ($42 billion) lending facility to finance affordable housing.

Chinese inflation also came in below expectations in June, according to figures released Wednesday that suggest the risk of deflation remains.

Analysts expect inflation to reach 0.6% in 2024, compared to a target of 3% set by the government. Price dynamics would accelerate to 1.5% in 2025.

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Faced with sluggish domestic demand and a protracted real estate crisis, Beijing has accelerated its investments in infrastructure and cutting-edge technologies.

Pan Gongsheng, governor of China’s central bank (PBOC), has pledged to maintain an accommodative monetary policy this year and said the central bank will use a range of tools, including interest rates and reserve requirement ratios, to support the economy.

However, the PBOC is unlikely to cut rates further, as easing too aggressively would accelerate capital outflows and put pressure on the yuan, which recently hit an eight-month low against the dollar.

Banks could suffer from too low rates when their margins have already been eroded by current monetary policy, and may have to lay off workers or cut wages, which would amplify deflationary pressures.

Economists polled by Reuters expect the central bank to cut its one-year prime rate by 10 basis points in the third quarter and lower the reserve requirement ratio by 25 basis points.

The issuance of ultra-long-term sovereign bonds in May could also help the recovery, analysts say, by providing more fiscal room for maneuver.

(Polls conducted by Rahul Trivedi, Devayani Sathyan and Susobhan Sarkar in Bengaluru and Jing Wang in Shanghai; reporting by Ellen Zhang and Kevin Yao; by Corentin Chappron; editing by Blandine Hénault)

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