BEIJING - China's economy contracted sharply in the second quarter, highlighting the colossal toll on activity from widespread COVID lockdowns and pointing to persistent pressure over coming months from a darkening global growth outlook.

Friday's data comes at a time of fears of a global recession as policymakers jack up interest rates to curb soaring inflation, heaping more hardship on consumers and businesses worldwide as they grapple with challenges from the Ukraine war and supply chain disruptions.

Gross domestic product fell 2.6% in the second quarter from the previous quarter, official data showed, compared with expectations for a 1.5% decline and a revised 1.4% gain in the previous quarter.

On a year-on-year basis, GDP in the April-June quarter grew a tepid 0.4%, missing forecast of a 1.0% gain, according to a Reuters poll of analysts, a sharp slowdown from 4.8% in the first quarter.

For the first half of the year, GDP grew 2.5%, well below the government's target of around 5.5% growth for this year.

"China's economy has stood on the edge of falling into stagflation, although the worst is over as of the May-June period. You can rule out the possibility of a recession, or two straight quarters of contraction," said Toru Nishihama, chief economist at Dai-ichi Life Research Institute in Tokyo.

"Given the tame growth, China's government is likely to deploy economic stimulus measures from now on to rev up its flagging growth, but hurdles are high for PBOC to cut interest rates further as it would fan inflation which has been kept relatively low at present."

Full or partial lockdowns were imposed in major centres across the country in March and April, including the commercial capital Shanghai, which saw a year-on-year contraction of 13.7% in GDP last quarter.

While many of those curbs have since been lifted, and June data offered signs of improvement, analysts do not expect a rapid economic recovery. China is sticking to its tough zero-COVID policy amid fresh flare-ups, the country's property market is in a deep slump and the global outlook is darkening.

The imposition of new lockdowns in some cities and the arrival of the highly-contagious BA.5 variant have heightened concerns among businesses and consumers about a prolonged period of uncertainty.

BOUNCE IN JUNE TEMPORARY?

Analysts believe room for the central bank to ease policy further could be limited by worries about capital outflows, as the U.S. Federal Reserve, and other economies, aggressively raises interest rates to fight soaring inflation.

China's rising consumer prices, while not as hot as elsewhere, also may add to constraints on monetary policy easing.

A Reuters poll forecast China's growth to slow to 4.0% in 2022, far below the official growth target of around 5.5%.

Data on June activity, also released Friday, showed that China's industrial output grew 3.9% in June from a year earlier, quickening from a 0.7% rise in May, although below a 4.1% increase forecast in a Reuters poll.

Retail sales, on the other hand, rose 3.1% from a year ago in June and marked the quickest growth in 4 months, after authorities lifted a two-month lockdown in Shanghai. Analysts had expected a 0% increase after May's 6.7% drop.

"Retail growth indicates that lockdowns have been the primary drag on consumption, with demand clearly rebounding once Shanghai and other major cities emerged from lockdowns at the end of May," said Jacob Cooke, CEO of WPIC Marketing + Technologies, in Beijing.

"Consumers are still harbouring some uncertainty about lockdowns, but with indications that future lockdowns won't be as strict, we're optimistic that consumption will continue to recover in H2."

Fixed asset-investment grew 6.1% in the first six months of the year from the same period a year earlier, versus a forecast 6.0% rise and down from a 6.2% jump in January-May.

The employment situation remained fragile, with the nationwide survey-based jobless rate falling to 5.5% in June from 5.9% in May as the economy rebounded. However, youth unemployment stood at a record of 19.3% in June, higher than 18.4% in May.

A shaky recovery in China's capital-starved property sector is being pressured further by a growing number of homebuyers across the country halting mortgage payments until developers resume construction of pre-sold homes.

Data on Friday showed that home prices fell 0.5% from a year ago, worsening from a 0.1% dip in the previous month, while growth on a monthly basis also failed to pick up.

Property investment fell 9.4% in June, worsening from a 7.8% decline in May, while property sales extended their declines by another 18.3% last month, Reuters calculations showed.

"Even with some massaging of the figures, it’s hard to see how the government’s target of “around 5.5%” growth this year can be attained," analysts at Capital Economics said.

"That would take a huge acceleration in the second half of this year, which is unlikely."

(Reporting by Kevin Yao, Stella Qiu and Ellen Zhang Editing by Shri Navaratnam)