China’s better-than-expected second-quarter gross domestic product (GDP) showed that its economy has rebounded from rock bottom, leading the rest of the world out of the ravages of Covid-19. Quarter-on-quarter GDP growth expanded by 11.5 per cent after a 10 per cent contraction in the first quarter, giving it the appearance of a V-shaped recovery, which few thought possible just a few months ago. Underneath the solid headline, however, lies a multi-speed recovery across the different sectors of the economy. In general terms, supply has outpaced demand, investment has outgrown consumption, and the industrial sectors have fared better than the tertiary sectors. This uneven recovery is partly a result of different responses to the pandemic. Resuming production in many industrial and manufacturing firms was as simple as pressing the restart button. But to revive consumption, households need to feel safe enough to return to social activity; and the lingering fear of Covid-19 relapses has slowed normalisation. Also contributing to uneven growth has been Beijing’s policy stimulus. The design of China’s stimulus package disproportionately benefited the industrial sectors, with much policy effort devoted to work resumption, infrastructure investment and lowering funding costs, unintentionally benefiting the property market and housing construction. In contrast, households are not a direct beneficiary of stimulus and thus, with labour market conditions and wage growth slow to recover, consumer spending has been held back. The different designs of policy stimulus could explain, in part, the different shapes of recovery across major economies. In the United States, for example, significant policy easing has been devoted to saving jobs and subsidising income losses. This led to a strong rebound in consumer spending in May, although the latest virus resurgence could set back this economic normalisation. Meanwhile, China’s priority was placed on restarting production in industrial and manufacturing firms, leaving consumption a laggard in the recovery process. This uneven recovery has two implications for China’s economic outlook. First, an incremental rebalancing of growth drivers is likely in the second half of the year. While both infrastructure and property investment will possibly remain resilient – supported by policy easing, a gradual normalisation of job and income growth should help to unleash pent-up demand from households, allowing consumption growth to catch up. An obvious assumption in this view is that the virus does not rear its ugly head again. The risk is not to be underestimated as the northern hemisphere enters the colder season. The uneven recovery could also ensure that policy easing continues for the rest of the year. Not only do risks of renewed virus outbreaks linger, many provinces in southern China are suffering from severe floods that have destroyed farmland, disrupted businesses, and damaged thousands of homes, affecting millions. Assuming the floods can be brought under control in the coming weeks, the near-term economic damage should be manageable, to the tune of 0.2-0.3 per cent of GDP, by our estimate. This is comparable to the shock from the 2016 flood, but pales in comparison to the 1998 disaster . However, if the severe rainfalls continue and the local authorities mishandle the emergence response, the economic shock could be exacerbated. I believe Beijing will stay vigilant against these risks and stand ready to prevent a derailing of the economic recovery. While keeping the foot on the gas pedal, there is a valid argument for not pressing too hard. China’s economy is already on track to recoup its Covid-19-induced losses by the end of the year, faster than any other major economy. The recent strong rally in equity and property prices will also make policymakers think twice about large-scale stimulus, which may disproportionately benefit the financial assets market, leading to a wider gap between the real economy and capital markets. A slow and targeted implementation of policy easing is more likely, and consistent with recent signals from the People’s Bank of China and the Politburo. This should allow year-on-year GDP growth to reach 5-6 per cent in the second half, by our estimate, with growth at 2.3 per cent for the whole of 2020. Aidan Yao is senior emerging Asia economist at AXA Investment Managers