China’s Q4 GDP shows a patchy recovery, raises case for stimulus

BEIJING — China’s economy grew slightly slower than expected in the fourth quarter (Q4), with a deepening property crisis, mounting deflationary pressures and weak demand reinforcing expectations that Beijing will have to roll out more stimulus measures soon.

Confounding most analysts’ expectations, the world’s second-largest economy has struggled to mount a strong and sustainable post-COVID pandemic bounce, burdened by the protracted real estate slump, weak consumer and business confidence, and mounting local government debts.

Gross domestic product (GDP) grew 5.2% in October-December from a year earlier, data from the National Bureau of Statistics (NBS) data showed on Wednesday, quickening from 4.9% in the third quarter but missing a 5.3% forecast in a Reuters poll.

The pace was solid enough to ensure Beijing met its annual growth target of around 5%, but analysts said the recovery remains shaky and jump-starting activity in 2024 could be a lot more challenging.

“The recovery from COVID — disappointing as it was — is over,” according to China Beige Book International’s latest survey released on Wednesday.

“Any true acceleration (this year) will require either a major global upside surprise or more active government policy.”

For the full-year 2023, the economy grew 5.2%, partly helped by the previous year’s low-base effect which was marked by COVID-19 lockdowns. Analysts had forecast 5.2% growth.

Highlighting some loss of momentum late in the year, on a quarter-by-quarter basis GDP grew 1.0% in October-December, slowing from a revised 1.5% gain in the previous quarter.

Policy insiders expect Beijing will maintain a similar growth target of around 5% for this year.

The head of NBS, Kang Yi, said at a press conference in Beijing that China’s 2023 growth was “hard won”, but added the economy faces a complex external environment and insufficient demand in 2024.

Stocks in China, already near five-year lows, fell after the disappointing data as did shares 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,” Mr. Kang said. “Fiscal, monetary and other policies have relatively large room for maneuvering, and there are conditions and space for intensifying the implementation of macro policies.”

SHAKY RECOVERY
December activity indicators released along with the GDP data showed factory output growth quickened at the fastest pace since February 2022, partly driven by stronger growth in automobile production, but retail sales grew at the slowest pace since September and investment growth remained tepid.

Data on the property sector, once a key driver of the economy, was far more grim.

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%. “I think markets were disappointed they didn’t cut interest rates on Monday, but it seems they are thinking about more targeted measures,” said Woei Chen Ho, economist at UOB. “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 currency continued to limit the scope of monetary easing.

“The piecemeal rollout of support from mid-year has done little to turn things around. It’s clear that China’s economy needs extra stimulus,” said Harry Murphy Cruise, economist at Moody’s Analytics.

“Direct support for households could be the crowbar needed to pry open wallets, but the prospect of such support has been a nonstarter for officials in recent years. Instead, monetary easing and new debt issuance for infrastructure, energy and manufacturing projects look more likely.”

POPULATION FALLS AGAIN
As businesses remained wary of adding workers in the face of many uncertainties ahead, the nationwide survey-based jobless rate increased to 5.1% in December from November’s 5.0%, NBS data showed.

NBS also resumed the publication of youth unemployment data, which it had suspended for five months. The December survey-based jobless rate for 16-24 years olds, excluding college students, was at 14.9%, compared with a record high of 21.3% in June.

Recent data suggested the economy was starting 2024 on shaky footing, with persistent deflationary pressures and a slight pick-up in exports unlikely to kindle a quick turnaround in lackluster factory activity. December bank lending was also weak. 

“While we still anticipate some near-term boost from policy easing, this is unlikely to prevent a renewed slowdown later this year,” said Julian Evans-Pritchard, head of China Economics at Capital Economics.

“Although the government met its 2023 GDP growth target of ‘around 5.0%’, achieving the same pace of expansion in 2024 will prove a lot more challenging.”

Adding to concerns over China’s longer-term growth prospects, the country’s population fell for a second consecutive year in 2023. The total number of people in China dropped by 2.08 million to 1.409 billion in 2023, a faster decline than in 2022. — Reuters