China's GDP Expands 5.2% in Q4, Misses Market Forecast

The second-largest economy in the world has failed to recover strongly from the COVID-19 pandemic because to a protracted housing crisis, low corporate and consumer confidence, growing local government debt, and sluggish global growth.

Official statistics released on Wednesday indicated that China’s economy grew 5.2% in the fourth quarter compared to a year earlier, allowing Beijing to exceed its annual growth target.

Due to a number of policy support measures, analysts had anticipated that the gross domestic product (GDP) would rise at a faster rate than it did in the third quarter (4.9%). However, they have cautioned that further stimulus may be required to move the economy onto a more sustainable path.

The second-largest economy in the world has failed to recover strongly from the COVID-19 pandemic because to a protracted housing crisis, low corporate and consumer confidence, growing local government debt, and sluggish global growth.

According to recent data, the economy was off to a rough start in 2024. This was likely due to ongoing deflationary pressures and a minor increase in exports, which did not appear likely to spark a rapid reversal in the dismal domestic activity. Bank lending declined in December as well.

Key points

2023 full-year GDP growth +5.2% (versus target of around 5%)

Q4 GDP +5.2% y/y (f’cast +5.3%, Q3 +4.9%)

Q4 GDP +1.0% q/q s/adj (f’cast 1%, revised Q3 +1.5%)

Dec industrial output +6.8% y/y (f’cast +6.6%, Nov +6.6%)

Dec retail sales +7.4% y/y (f’cast +8.0%, Nov +10.1%)

Market reaction:

China’s blue-chip CSI300 Index (.CSI300), opens new tab dropped more than 1%, hovering near five-year lows, as the country’s fourth-quarter economic data left investors disappointed. The Shanghai Composite Index (.SSEC), opens new tab was roughly 0.8% lower.

Hong Kong’s Hang Seng Index (.HSI), opens new tab slumped nearly 3% to its lowest level since November 2022, led by property (.HSMPI), opens new tab and technology shares (.HSTECH), opens new tab.

Commentary:

Woei Chen Ho, Economist, UOB, Singapore

“The full-year numbers were in line with expectations … but the December numbers were mixed. Overall, I think the data, especially from the property side, is not looking good. Property sales weakened worse than November levels.

“I think markets were disappointed they didn’t cut interest rates on Monday, but it seems they are thinking about more targeted measures. The property issues are not fixed by broad-based rate cuts.”

Ken Cheung, Chief Asian FX Strategist, Mizuho Bank, Hong Kong

“GDP data came within market expectations, and December activity indicators were supported by base effect, while consumption remained relatively weak.

“I think markets focus more on the property data, and are keen to gauge when the sector will recover. Meanwhile, credit growth was still tepid.

“On monetary policy, I think China will take a ‘wait-and-see’ approach largely due to renewed yuan depreciation pressure. It will wait until the U.S. Federal Reserve offers a clearer monetary easing trajectory.”

Marco Sun, Chief Financial Markets Analyst, MUFG Bank (China), Shanghai

“Today’s key economic data in China indicated a positive trajectory towards recovery, aligning with market expectations. However, a closer look at the indexes revealed a mixed picture. The Q4 GDP fell slightly short of expectations, while industrial production surpassed forecasts. This nuanced performance suggested a dynamic economic landscape.

“It appears that the People’s Bank of China (PBOC) is currently in a wait-and-see period, carefully monitoring the economic indicators. The slight variance in GDP and industrial production highlighted the complexity of the recovery process, prompting a cautious approach from the central bank.

“As China navigates these economic intricacies, stakeholders will be keenly observing how policy measures may evolve in response to the ongoing situation.”

Andy Ji, Asia Senior Fx Analyst, Intouch Capital Markets, Shanghai

“The underlying December monthly data dump outperformed consensus somewhat, although as in the quarterly GDP data, base effects played an outsized role as China was still in the final stretch of lockdowns during the same period last year. Overall, the monthly data confirmed the broadly weaker momentum in the last month of the year to a sluggish start of the new year.

“It is worth highlighting that the sequential real GDP growth data was revised up from 1.3% quarter-on-quarter to 1.5% in the fourth quarter, pointing to a more noticeable momentum loss into the final quarter of 2023.”

Toru Nishihama, Chief Economist, Dai-Ichi Life Research Institute, Tokyo

“Private consumption put a drag on overall growth and I expect China’s economic growth to ease even further down the road.

“It’s true Chinese authorities have rolled out stimulus measures to prop up the economy, but the effects have hardly played out in the economy because the same old infrastructure spending has been overdone in the past two decades.

“China’s economy is already sliding into asset deflation, with new housing sales sliding and those for second-hand homes declining even more.”

Alicia Garcia Herrero, Chief Economist, Asia Pacific, Natixis

“I don’t think this will be seen as wonderful news … 2021 growth should be the right bar for a post-COVID year like 2023, and then growth came in at 8.1%, not 5.2%. China is on a structural deceleration path and growth in 2024 will be even lower than in 2023.

“There are a number of messages that I expect to become even more relevant down the road in 2024. First, there was no cut in the loan rate on Monday. Everybody is expecting two RRR cuts, but nothing so far. Perhaps Li Qiang wants to maintain Xi Jinping’s mantra that ‘stimulus is evil’, but the reality is that they don’t seem willing to deploy any stimulus, even though they’re very willing to name a target for next year.

“But the key here is to attract foreign investment. The messaging domestically is mostly negative; the need to deal with corruption, for example. But externally, it’s party-time! Now, Li Qiang is jumping on a plane to Davos to announce the number, which isn’t even that wonderful. China is such a big economy; does it really need to do that?”

Julian Evans-Pritchard, Head of China Economics, Capital Economics

“China’s economy lost momentum in Q4 according to the official GDP figures. But we suspect that’s because they failed to acknowledge the full extent of the weakness earlier in the year. Headline GDP expanded by 5.2% y/y last quarter, up from 4.9% in Q3. But this reflects a weaker base for comparison due to COVID disruptions in Q4 2022.

“The wider activity data have been more mixed, but don’t appear consistent with a slowdown last quarter. The headline GDP figures notwithstanding, we think the data are consistent with a slight improvement in momentum recently. But the recovery clearly remains shaky. And while we still anticipate some near-term boost from policy easing, this is unlikely to prevent a renewed slowdown later this year.

“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.”

Xing Zhaopeng, Senior China Strategist, ANZ, Shanghai

“Today’s data continued to suggest that domestic demand has constrained growth. Nominal GDP was lower than the real GDP, reflecting deflationary pressure. And, the data still pointed in the direction of rate cuts.”

Jun Rong Yeap, Market Strategist, IG, Singapore

“The series of China’s economic data releases today seem to reflect more of the same – an uneven growth environment – which does not offer much conviction of a sustained turnaround just yet.

“Overall, the trend of weak economic data suggests that the accommodative policy environment is yet to translate to a sustained turnaround in economic conditions, which may amplify call for more supportive intervention by authorities in the first half of 2024.

“That said, given that China’s 2023 GDP has met the authorities’ target for 5% and they may continue to set a ‘low’ hurdle for GDP target in 2024, a more measured approach to policy support remains the likely case, as compared with any aggressive easing.”

Tao Chuan, Chief Macro Analyst, Soochow Securities, Beijing

“China’s GDP deflator, which is nominal minus real GDP, has been negative for three consecutive quarters. It was -1.5% in the fourth quarter. The last time it happened was in 1998.

“So, low inflation has become the norm, reflecting certain economic risks, and consumption is lower than expected. A series of reflationary policies are needed to be rolled out this year to boost demand from enterprises and households.”

Background

China’s economic growth is likely to slow to 4.6% in 2024, and cool further to 4.5% in 2025, a Reuters poll showed, raising the heat on policymakers to roll out more stimulus measures amid deflationary pressures and a severe property slump.

The PBOC has pledged to step up policy support for the economy this year and promote a rebound in prices.

But the PBOC faces a dilemma as more credit is flowing to productive forces than into consumption, which could add to deflationary pressures and reduce the effectiveness of its monetary policy tools.

On Monday, the PBOC 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.

Analysts polled by Reuters expected the central bank to cut the one-year loan prime rate (LPR) — the benchmark lending rate — by 10 basis points (bps) in the first quarter.

The PBOC may also cut banks’ reserve requirement ratios (RRR) in March-April, if economic indicators continue to weaken, Wen Bin, chief economist at Minsheng Bank, said in a note.

The government, which in October unveiled 1 trillion yuan in sovereign bonds to fund investment projects, is likely to press ahead with more fiscal spending to drive growth, analysts said.

January 17, 2024