China’s GDP growth in the third quarter shows that the economic recovery is gaining momentum

BEIJING, Oct 18 (Reuters) – China’s economy grew faster than expected in the third quarter, while consumption and industrial activity in September also surprised by rising, suggesting the latest wave of policy measures is helping to boost temporary growth. Recovery.

The rapid weakening of growth in the world’s second-largest economy since the second quarter has prompted authorities to step up support steps, with a set of data released on Wednesday suggesting that stimulus is starting to gain momentum although the real estate crisis and other headwinds still pose risks to the outlook. .

Data from the National Bureau of Statistics showed that gross domestic product grew by 4.9% in the July-September period from a year earlier, versus analysts’ expectations in a Reuters poll for a 4.4% increase but slower than the 6.3% expansion in the United States. 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 above growth expectations of 1.0%.

“It looks like all this stimulus is finally starting to take effect, with a broad impact on growth, retail sales, industrial production and unemployment,” said Matt Simpson, chief market analyst at City Index in Brisbane.

The government is walking a tightrope in its attempt to restore economic balance, as policymakers are forced to navigate a local ownership crisis, rising youth unemployment, declining confidence in the private sector, slowing global growth, and Sino-US tensions over trade, technology and geopolitics. .

In recent weeks, Beijing has unveiled a range of measures, but its ability to stimulate growth has been hampered by concerns about debt risks and the fragile yuan, which has been hit hard this year by widening yield spreads as global interest rates remain high, led by China. Due to the tightening campaign launched by the Federal Reserve.

Asian stocks trimmed losses after better-than-expected Chinese data, while the trade-dependent yuan and Australian and New Zealand dollars rebounded. The yuan hit its highest level in a week at 7.2905 to the dollar.

On track to achieve the government’s GDP target

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

“The improvement in third-quarter economic data makes it unlikely that the government will launch stimulus in the fourth quarter, when the 5% growth target is set to be met,” said Qiu Zhang, chief economist at Pinpoint Asset Management.

“The government and market focus will shift to growth expectations next year. The key issue is the growth target the government will set and the amount of fiscal easing that will be implemented.”

The statistics bureau said China would be able to meet its 2023 growth target if growth in the fourth quarter exceeds 4.4%.

The more optimistic than expected data prompted international banks to update their growth forecasts for 2023, with Nomura raising its forecast to 5.1% from 4.8% previously and JP Morgan raising its forecast to 5.2% from 5%.

Moody’s Analytics also 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 an increase of 4.3%.

Retail sales growth, a measure of consumption, also beat expectations, rising 5.5% last month, accelerating from a 4.6% increase in August. Analysts had expected retail sales to expand by 4.9%.

Investment in fixed assets grew by 3.1% in the first nine months of 2023 compared to the same period of the previous year, compared to expectations for a 3.2% increase. It expanded by 3.2% from January to August.

Decline of ownership

But analysts say the growing slowdown in the real estate sector, which accounts for nearly a quarter of economic output, poses a major challenge for policymakers as they seek to keep growth on track.

The latest data confirms these concerns. Real estate investment in the first nine months of 2023 fell by 9.1% from the previous year, after falling by 8.8% in the period from January to August. Private companies’ investment in fixed assets fell by 0.6% in the January-September period year-on-year, highlighting weak private sector confidence.

The faltering real estate sector has hit some of the country’s largest developers.

A grace period for a $15 million coupon payment from Country Garden Holdings (2007.HK), China’s largest private real estate developer, expired earlier today, raising fears it could default on its foreign debt.

“In the grand scheme of things, I don’t think individual developers facing more financial turmoil will be enough to derail things. Developer problems have been known to the market for some time now,” said Frederic Neumann, head of Asia’s Asia division. Economist and Co-Head of Global Research at HSBC.

However, efforts by policymakers to support major cities have failed to boost confidence, highlighting the depth of problems in an industry that descended into crisis two years ago.

Louise Lu said: “In the near term, our expectations remain for another round of 10 basis point interest rate cuts in the fourth quarter from the People’s Bank of China, an escalation in the easing of restrictions on home purchases, and modest increases in infrastructure spending directed by the People’s Bank of China. Country”. , a Chinese economist at Oxford University of Economics, in a note.

The International Monetary Fund on Wednesday lowered its 2023 and 2024 growth forecasts for the Asian giant, saying the real estate slowdown could cause China’s gross domestic product to decline.

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