China’s GDP shows patchy economic recovery
China’s economy grew 5.2% in 2023, slightly more than the official target, but the recovery was far shakier than many analysts and investors expected, with a deepening property crisis, mounting deflationary risks and tepid demand casting a pall over the outlook for this year.
Expectations that the world’s second-largest economy would stage a strong postCovid-19 bounce quickly fizzled as the year progressed, with weak consumer and business confidence, mounting local government debts and slowing global growth sharply weighing on jobs, activity and investment.
“The recovery from Covid19 — disappointing as it was — is over,” according to China Beige Book International’s latest survey released yesterday.
“Any true acceleration [this year] will require either a major global upside surprise or more active government policy,” the private data collector said.
A slew of economic readings early yesterday suggested it lost more momentum heading into the new year, despite a flurry of government support measures.
GDP grew 5.2% in OctoberDecember from a year earlier, data from the National Bureau of Statistics (NBS) showed, quickening from 4.9% in the third quarter but missing a 5.3% forecast in a Reuters poll.
On a quarter-by-quarter basis, however, GDP grew 1.0%, slowing from a revised 1.5% gain in the previous quarter.
Some December indicators released along with the GDP data were more grim, suggesting the country’s protracted property crisis is deepening despite government efforts to prop up the sector.
Other data for December showed retail sales growth slowed and investment remained tepid, with only industrial output showing some signs of improvement.
Policy insiders expect Beijing will maintain a similar growth target of about 5% for this year, but analysts say that may be a tall order even with additional stimulus.
Cyclical problems such as the property crisis are colliding with deep-seated structural issues such as an over-reliance on debt-fuelled investment and infrastructure, rather than steps to broaden and deepen consumption.
The head of NBS, Kang Yi, said at a media conference in Beijing that China’s 2023 growth was hard won, but added the economy faced a complex external environment and insufficient demand in 2024.
Stocks in China, already plumbing five-year lows, tumbled after the latest disappointing data as did Chinese firms listed in Hong Kong, while the yuan eased.
The currency has come under fresh pressure recently as market expectations grow that policymakers will have to commit soon to more interest rate cuts and other support measures.
“At present, our country’s government debt level and inflation rate are both low, and the policy toolbox is constantly being enriched,” NBS’ Kang said.
Analysts said stock market investors appeared most rattled by ominous real estate data yesterday.
China’s December new home prices fell at the fastest pace in nearly nine years, marking the sixth straight month of declines, NBS data showed.
Property sales by floor area fell 8.5% for the year while new construction starts plunged 20.4%.
Debt-ridden developers have delayed construction on millions of homes according to economists’ estimates, further weighing on consumer confidence.
“I think markets were disappointed they didn’t cut interest rates on Monday, but it seems they are thinking about more targeted measures,” Woei Chen Ho, an economist at UOB, said.
“The property issues are not fixed by broad-based rate cuts.”
On Monday, the central bank left the medium-term policy rate unchanged, defying market expectations for a cut as pressure on the yuan continued to limit the scope of monetary easing.
“The piecemeal rollout of support from midyear has done little to turn things about.
“It’s clear that China’s economy needs extra stimulus,” Harry Murphy Cruise, economist at Moody’s Analytics, said.
“Direct support for households could be the crowbar needed to pry open wallets, but the prospect of such support has been a non-starter for officials in recent years.