China’s Q3 GDP Growth Shows Economic Recovery

  • China’s Q3 GDP growth was 4.9% y/y, vs Q2’s 6.3%
  • Q/Q GDP growth accelerates to 1.3% in Q3 from 0.5% in Q2
  • September industrial production, retail sales beat forecasts
  • Stimulus measures are beginning to pay dividends, and may be needed

BEIJING, Oct 18 (Reuters) – China’s economy grew faster than expected in the third quarter, while consumption and industrial activity also surprised on the upside in September, with recent policy measures helping to temporarily strengthen momentum. Redemption.

Growth in the world’s second-largest economy has weakened sharply since the second quarter, with Wednesday’s data set indicating that stimulus is starting to gain traction, even as the asset crunch and other interventions pose risks to the outlook. .

Gross domestic product (GDP) grew 4.9% from a year earlier in July-September, data released by the Office for National Statistics showed, against analysts’ expectations in a Reuters poll of a 4.4% increase but slower than a 6.3% expansion. Second quarter.

On a quarterly basis, GDP grew 1.3% in the third quarter, accelerating from a revised 0.5% in the second quarter and beating forecasts for 1.0% growth.

Reuters Graphics

“With a broader pulse in growth, retail sales, industrial production and unemployment, all those incentives are finally starting to materialize,” said Matt Simpson, senior market analyst at CitiIndex in Brisbane.

As the government tries to restore economic balance, policymakers must navigate a domestic asset crisis, high youth unemployment, depressed private sector confidence, a slowdown in global growth, and Sino-US tensions over trade, technology and geopolitics. .

Beijing has unveiled a slew of measures in recent weeks, but its ability to spur growth has been hampered by fears of credit risks and a weaker yuan, which has been hit hard this year by rising global interest rates and widening yield differentials. by the Federal Reserve’s tightening campaign.

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Asian shares pared losses after better-than-expected Chinese data, while the yuan and trade-dependent Australian and New Zealand dollars all rose. The yuan rose to a one-week high of 7.2905 to the dollar.

On track to the government’s GDP target

The pace of recovery suggests that the government’s full-year 2023 growth target of 5.0% is likely to be met.

“The improvement in Q3 economic data makes the government less likely to start stimulus in Q4,” said Zhiwei Zhang, chief economist at Pinpoint Asset Management.

“The focus of the government and the market will shift to the growth outlook for next year. The key issue is what growth target the government will set and how much fiscal easing will take place.”

If fourth-quarter growth is 4.4%, China can meet its 2023 growth target, the Bureau of Statistics said.

The higher-than-expected data prompted international banks to upgrade their 2023 growth outlook, with Nomura raising its forecast to 5.1% from 4.8% and JPMorgan raising its forecast to 5.2% from 5%.

Moody’s Analytics has raised its 2023 growth forecast to 5% from 4.9%.

Industrial production in September grew a stronger-than-expected 4.5% from a year earlier, but the pace was unchanged from August, according to separate data. Analysts had expected a 4.3% increase.

Growth in retail sales, a measure of consumption, beat expectations, rising 5.5% last month and accelerating from a 4.6% increase in August. Analysts had expected retail sales to rise 4.9%.

Fixed asset investment rose 3.1% in the first nine months of 2023, compared with expectations for a 3.2% rise. It expanded by 3.2% in the January-August period.

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Property down

But a deepening slump in the property sector, which accounts for nearly a quarter of economic output, poses a major challenge for policymakers as they try to keep up growth, analysts said.

Recent data underscores those concerns. Property investment in the first nine months of 2023 fell 9.1% from a year earlier, after falling 8.8% in January-August. Fixed asset investment by private firms fell 0.6% year-on-year in January-September, highlighting weak private sector confidence.

A slumping property sector has affected some of the country’s biggest developers.

A grace period for a $15 million coupon payment by China’s biggest private property developer Country Garden Holdings ( 2007.HK ) expired earlier in the day, fueling fears that it may default on its offshore debt.

“In the grand scheme of things, I don’t think individual developers running into more financial turmoil will be enough to derail things. The market has known the problems with developers for some time,” said Frederick Newman, chief executive of Asia. Economist and Co-Head of Global Research at HSBC.

Above all, efforts by policymakers to support big cities have failed to boost confidence, underscoring the depth of problems in an industry that collapsed into crisis two years ago.

“In the near term, our expectations remain for a 10bp rate cut in Q4 from the PBOC, a step in easing home buying restrictions and a modest increase in government-led infrastructure spending,” said Louis Lu. , China economist at Oxford Economics, in a note.

The International Monetary Fund on Wednesday cut its 2023 and 2024 growth forecasts for the Asian giant, saying an asset slowdown would reduce China’s gross domestic product.

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Reporting by Ellen Zhang, Joe Cash and Kevin Yao; Editing by Sri Navaratnam

Our Standards: Thomson Reuters Trust Principles.

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