Fears are growing that China’s economy is on the verge of deflation after recent economic data indicated stagnant growth. This has led to renewed calls for more significant policy intervention.

According to Beijing, GDP for the second quarter grew 6.3% compared to the previous year, falling short of market expectations of 7.3%. Additionally, the growth rate of 0.8% from the first quarter was slower than the 2.2% growth recorded in the first three months of the year.

Hong Hao, chief economist at Grow Investment Group, stated, “We need to see broad and persistent price pressure before we can declare deflation. This is happening in the upstream sectors and it normally takes two to four quarters to pass down.” He added, “I think we are on the verge of deflation. Now it’s the time to act to stem the deflationary pressure.”

Hong pointed to official data from last week, which showed that China’s producer prices fell 5.4% in June compared to the previous year and slipped 0.8% from the previous month, falling below analysts’ expectations. This marked the ninth consecutive decline in producer prices and the steepest drop since December 2015.

Consumer price inflation in June remained flat, primarily due to a 7.2% drop in pork prices. This missed Reuters’ expectations for a 0.2% rise and was weaker than the 0.2% increase in May.

The People’s Bank of China (PBOC) pushed back on the idea of deflation. Liu Guoqiang, deputy governor of the PBOC, stated, “At this time there is no deflation, and there will be no risk of deflation in the second half of the year.” He pointed to factors such as China’s economic recovery and growth in money supply. Chinese banks extended 1.81 trillion yuan ($258.23 billion) in new yuan loans in June, a 22% increase from May.

However, some economists are pointing to other indicators. Zhang Zhiwei, president and chief economist at Pinpoint Asset Management, mentioned that “nominal GDP growth turns out to be lower than real GDP growth in Q2, the first time since comparable data are available in Q4 2016. This indicates that the risk of deflation is serious.” Economists at Citi and Macquarie also expressed concerns about sagging prices in China.

Other June data have further indicated a weak economic outlook. Property investment showed a deepening decline, even though top-line fixed asset investment and industrial output figures slightly exceeded market expectations. Retail sales in June slowed to 3.1% compared to the previous year, down from 12.7% in May.

As a result of the disappointing data, Wall Street banks such as Barclays, Citi, Morgan Stanley, and JP Morgan have downgraded their forecasts for China’s annual growth. Citi, Morgan Stanley, and JP Morgan now expect China’s annual growth this year to be 5%, while Barclays adjusted its forecast from 5.3% to 4.9%.

Fears are growing that China’s economy is on the verge of deflation after recent economic data indicated stagnant growth. This has led to renewed calls for more significant policy intervention.

According to Beijing, GDP for the second quarter grew 6.3% compared to the previous year, falling short of market expectations of 7.3%. Additionally, the growth rate of 0.8% from the first quarter was slower than the 2.2% growth recorded in the first three months of the year.

Hong Hao, chief economist at Grow Investment Group, stated, “We need to see broad and persistent price pressure before we can declare deflation. This is happening in the upstream sectors and it normally takes two to four quarters to pass down.” He added, “I think we are on the verge of deflation. Now it’s the time to act to stem the deflationary pressure.”

Hong pointed to official data from last week, which showed that China’s producer prices fell 5.4% in June compared to the previous year and slipped 0.8% from the previous month, falling below analysts’ expectations. This marked the ninth consecutive decline in producer prices and the steepest drop since December 2015.

Consumer price inflation in June remained flat, primarily due to a 7.2% drop in pork prices. This missed Reuters’ expectations for a 0.2% rise and was weaker than the 0.2% increase in May.

The People’s Bank of China (PBOC) pushed back on the idea of deflation. Liu Guoqiang, deputy governor of the PBOC, stated, “At this time there is no deflation, and there will be no risk of deflation in the second half of the year.” He pointed to factors such as China’s economic recovery and growth in money supply. Chinese banks extended 1.81 trillion yuan ($258.23 billion) in new yuan loans in June, a 22% increase from May.

However, some economists are pointing to other indicators. Zhang Zhiwei, president and chief economist at Pinpoint Asset Management, mentioned that “nominal GDP growth turns out to be lower than real GDP growth in Q2, the first time since comparable data are available in Q4 2016. This indicates that the risk of deflation is serious.” Economists at Citi and Macquarie also expressed concerns about sagging prices in China.

Other June data have further indicated a weak economic outlook. Property investment showed a deepening decline, even though top-line fixed asset investment and industrial output figures slightly exceeded market expectations. Retail sales in June slowed to 3.1% compared to the previous year, down from 12.7% in May.

As a result of the disappointing data, Wall Street banks such as Barclays, Citi, Morgan Stanley, and JP Morgan have downgraded their forecasts for China’s annual growth. Citi, Morgan Stanley, and JP Morgan now expect China’s annual growth this year to be 5%, while Barclays adjusted its forecast from 5.3% to 4.9%.