China’s GDP growth drops to 6%, lowest since early 1990s
BEIJING/TOKYO:China continued its grind to more moderate growth in the third quarter as investment slowed, providing little upside for a global economy flirting with its first recession since 2009.
Gross domestic product rose 6% in the July-September period from a year ago, the slowest pace since the early 1990s and weaker than the consensus forecast of 6.1%. On the upside, factory output improved and retail sales held up, but slowing investment growth remained a concern.
Policymakers appear to be allowing the world’s second largest economy to drift lower as they seek to clean up the financial system and curb excessive credit growth while they fight a confidence-sapping trade war with US President Donald Trump. With a drop off in exports to the US expected to continue as long as tariffs remain, the economy is likely to keep struggling as falling factory prices hit company profits and rising consumer inflation hits spending power.
Even with the slowdown, yearto-date growth of 6.2% suggests the government can hit its target of an expansion of 6% to 6.5% for 2019. Until now, officials have focused on limited, targeted measures such as reserve-ratio cuts and credit support, wary of expanding the nation’s already heavy debt load. A meeting of the Communist Party’s top leadership due in the coming days may present an opportunity to review stimulus settings.
“China’s economy is grappling with both external and internal headwinds,” said Frederic Neumann, co-head of Asian economics research at HSBC Holdings Plc in Hong Kong. “Exports started to contract of late amid wobbly global demand and rising tariffs in the US Despite some stabilization in retail sales and industrial production in September, overall demand continues to soften, reflecting still relatively tight credit conditions.”
Nominal growth, which is unadjusted for inflation, slowed to 7.6% from a year earlier, according to Bloomberg calculations. That’s the slowest since the third quarter of 2016.
The nominal growth rate “tends to capture the cycles in the economy better”, according to a research note from Trivium China.
It also gives a better idea of whether growth is fast enough to repay the nation’s growing debt, as lending is denominated in nominal values and isn’t adjusted for inflation.
As China slows, it is buying less from the rest of the world, pushing its trade surplus higher and dragging on global economic growth. That’s having a knock-on effect on trade partners, from developed economies like Germany to commodity suppliers.