China’s economy contracted by 2.6% q/q in Q2 under the weight of lockdowns and other COVID restrictions, slowing y/y growth to 0.4%. Deepening declines in new housing starts and land sales indicate the property sector will remain a meaningful drag on the economy in the second half of the year, even if COVID restrictions ease and activity in other sectors improve. Commodity prices have declined recently, and slower property construction activity represents a meaningful disinflationary force. Government borrowing drove a strong expansion in headline credit growth in June, while additional easing steps will be necessary to boost private sector credit demand.
