The Chinese economy returned to growth in the second quarter, marking an important milestone in the global struggle to recover from the coronavirus pandemic.

Gross domestic product expanded 3.2% in the three months to June from a year ago, reversing a 6.8% decline in the first quarter and beating the median forecast of 2.4%. However, the economy is still 1.6% smaller than at the end of the first half in 2019.

Having shut its economy in the first quarter to arrest the virus spread and managed so far to largely defeat subsequent outbreaks, China is claiming global leadership in dealing with the deadly disease. Yet a conservative stimulus approach has produced only a modest domestic recovery, and one that remains highly vulnerable to setbacks in external demand as shutdowns continue to hamper activity elsewhere.

According to Bloomberg, the CSI 300 Index fell 1% at 10:54 a.m. local time, heading for the first three-day loss since May, further evidence that the recent exuberance in Chinese stocks is fading.

Industrial output rose 4.8% from a year earlier, matching the median estimate. Retail sales shrank 1.8%, weaker than a projected 0.5% increase. Fixed-asset investment shrank 3.1% in the first half of the year, versus a forecast drop of 3.3%. In the first half of the year, industrial output was 1.3% smaller, while retail sales shrank by 11.4%. The surveyed urban jobless rate fell to 5.7%.

“The recovery in the second quarter and June has remained uneven — one that was driven by credit stimulus as evident in the strong infrastructure and property investment, while the recovery in retail sales and private investment has continued to lag,” said Michelle Lam, greater China economist at Societe Generale SA in Hong Kong. “Given the buoyant stock market and housing inflation in selected cities, policymakers will probably save bullets and hold back broad-based easing and find the current growth trajectory acceptable.”

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