- China’s GDP grew by 4.9% year-on-year in the third quarter and 6.3% in the second quarter.
- Third-quarter GDP growth accelerates to 1.3% from 0.5% in the second quarter
- Industrial production and retail sales in September exceeded forecasts
- Stimulus measures are starting to pay off, more may be needed
BEIJING, Oct 18 (Portal) – China’s economy grew faster than expected in the third quarter, while consumption and industrial activity also surprised positively in September, suggesting the recent spate of policy measures is helping to bolster the cautious recovery .
Rapidly weakening growth in the world’s second-largest economy since the second quarter prompted authorities to step up support measures. Wednesday’s data suggests stimulus efforts are beginning to gain momentum, although a housing crisis and other headwinds continue to pose risks to the outlook.
Gross domestic product (GDP) grew 4.9% in July and September from a year earlier, data released by the National Bureau of Statistics showed, while analysts in a Portal poll had expected a rise of 4.4%, however slower than the 6.3% increase in the second quarter.
On a quarterly basis, GDP grew 1.3% in the third quarter, accelerating from the revised 0.5% in the second quarter and above the 1.0% growth forecast.
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“It appears that all of this stimulus is finally having an impact, with a broad spectrum of growth, retail sales, industrial production and unemployment,” said Matt Simpson, senior market analyst at City Index in Brisbane.
The government is walking a fine line as it tries to restore economic balance. Policymakers must contend with a domestic housing crisis, high youth unemployment, dampened private sector confidence, slowing global growth and Sino-American tensions on trade, technology and geopolitics.
Beijing has unveiled a series of measures in recent weeks, but its ability to boost growth has been hit by fears about debt risks and a fragile yuan, which has been hit hard this year by widening yield differentials amid persistently high global interest rates Federal Reserve tightening campaign.
Asian stocks pared losses after better-than-expected China data, while the yuan and the trade-dependent Australian and New Zealand dollars all recovered. The yuan hit a weekly high of 7.2905 per dollar.
Towards the government’s GDP target
The recovery momentum suggests that the government’s full-year 2023 growth target of around 5.0% is likely to be achieved.
“Improving economic data for the third quarter makes it less likely that the government will introduce stimulus measures in the fourth quarter as it aims to achieve the 5% growth target,” said Zhiwei Zhang, chief economist at Pinpoint Asset Management.
“The government and market focus will shift to the growth prospects for next year. The key question is what growth target the government will set and how much fiscal easing will occur.”
The statistics bureau said China could meet the 2023 growth target if growth exceeds 4.4% in the fourth quarter.
The rosier-than-expected data has prompted international banks to raise their growth outlook for 2023: Nomura raised its forecast to 5.1% from 4.8% previously and JPMorgan raised its forecast to 5.2% from 5%.
Moody’s Analytics also raised its 2023 growth forecast to 5% from 4.9%.
According to separate data, industrial production grew 4.5% more than expected in September compared with a year earlier, but the pace remained unchanged from August. Analysts had expected an increase of 4.3%.
Growth in retail sales, a gauge of consumption, also beat expectations, rising 5.5% last month, accelerating from a 4.6% rise in August. Analysts had expected retail sales to rise 4.9%.
Fixed investment increased by 3.1% in the first nine months of 2023 compared to the same period last year, while an increase of 3.2% was expected. In the January-August period it grew by 3.2%.
Real estate downturn
But a deepening downturn in the real estate sector, which accounts for nearly a quarter of economic output, poses a major challenge for policymakers as they try to keep growth on track, analysts say.
The latest data underscores these concerns. Real estate investment fell 9.1% year-on-year in the first nine months of 2023, after plunging 8.8% in January and August. Fixed investment by private companies fell 0.6% year-on-year in January-September, a sign of weak private sector confidence.
The weakening real estate sector has hit some of the country’s biggest developers.
A deadline for a $15 million coupon payment by Country Garden Holdings (2007.HK), China’s largest private real estate developer, expired earlier in the day, raising fears that the company had defaulted on its offshore debt .
“On the whole, I don’t think individual developers getting into further financial turmoil will be enough to derail things. The market has been aware of developers’ problems for some time,” said Frederic Neumann, Head of Asia Economist and Co-Head of Global Research at HSBC.
Still, policymakers’ efforts to support major cities have failed to boost confidence, underscoring the scale of problems in the industry, which plunged into crisis two years ago.
“In the near term, we still expect another round of 10 basis point interest rate cuts from the PBOC in the fourth quarter, further easing of restrictions on home purchases and modest increases in government-led infrastructure spending,” said Louise Loo, China economist at Oxford Economics, in a note.
The International Monetary Fund on Wednesday downgraded its growth forecasts for the Asian giant for 2023 and 2024, saying the slowdown in the real estate market could lead to a decline in China’s GDP.
Reporting by Ellen Zhang, Joe Cash and Kevin Yao; Edited by Shri Navaratnam
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