BEIJING - China’s economy grew at a faster-than-expected pace in the third quarter, while consumption and industrial activity in September also topped forecasts, suggesting recent stimulus efforts are helping to bolster a tentative recovery.
Rapidly weakening growth in the world’s second-biggest economy since the second quarter had prompted authorities to step up their support, with Wednesday’s data indicating the stimulus is starting to gain traction, although a property crisis and other headwinds continue to pose risks to the outlook.
Gross domestic product (GDP) grew 4.9% in July-September from the same period a year earlier, data released by the National Bureau of Statistics showed, versus analysts’ expectations in a Reuters poll for a 4.4% increase but slower than the 6.3% expansion in the second quarter.
On a quarter-by-quarter basis, GDP grew 1.3% in the third quarter, accelerating from 0.5% in the second quarter and above the forecast for growth of 1.0%.
“It seems that all of that stimulus is finally beginning to take effect, with a broad beat from growth, retail sales, industrial production and unemployment,” said Matt Simpson, senior market analyst at City Index in Brisbane.
The government is walking a tightrope as it tries to restore economic equilibrium, with policymakers having to navigate a domestic property crisis, high youth unemployment, depressed private sector confidence, a slowdown in global growth and Sino-US tensions over trade, technology and geopolitics.
Beijing in recent weeks has announced a raft of measures, but its ability to spur growth has been hamstrung by fears over debt risks and a fragile yuan, which has been hit hard this year due to widening yield differentials as global interest rates remain high, led by the US Federal Reserve’s tightening campaign.
Asian stocks pared their losses after the better-than-expected data from China, while the yuan hit a one-week high of 7.2905 per dollar.
Target likely to be reached
The recovery momentum suggests the government’s full year 2023 growth target of around 5.0% is likely to be achieved.
“The improvement in third-quarter economic data makes it less likely for the government to launch stimulus in the fourth quarter, as the growth target of 5% is set to be achieved,” said Zhiwei Zhang, chief economist at Pinpoint Asset Management.
“The focus of the government and the market will shift to the growth outlook for next year. The key issue is what growth target the government will set and how much fiscal easing will take place.”
The statistics bureau said China would be able to hit the 2023 growth target if fourth-quarter growth tops 4.4%.
Industrial output in September expanded by a stronger than expected 4.5% from a year earlier, but the pace was unchanged from August. Analysts had expected a 4.3% increase.
Growth of retail sales, a gauge of consumption, also beat expectations, rising 5.5% last month, and accelerating from a 4.6% increase in August. Analysts had expected retail sales to expand 4.9%.
Fixed-asset investment grew 3.1% in the first nine months of 2023 from the same period a year earlier, versus expectations for a 3.2% rise. It expanded 3.2% in the January-August period.
Property downturn
But a deepening downturn in the property sector, which accounts for nearly a quarter of China’s economic output, poses a big challenge to policymakers as they seek to keep growth on track, analysts said.
The latest data underlined those worries. Property investment in the first nine months of 2023 fell by 9.1% from a year earlier, after slumping 8.8% in January-August. Fixed-asset investment by private companies fell 0.6% year-on-year in the first nine months, highlighting weak private sector confidence.
The faltering property sector has hit some of the biggest developers in the country.
A grace period for a $15-million coupon payment by Country Garden Holdings, China’s biggest private property developer, expired earlier on Wednesday, fuelling fears that it had defaulted on its offshore debt.
“In the grand scheme of things, I don’t think individual developers running into further financial turbulence will be enough to derail things. The problems of the developers have been known to the market for some while now,” said Frederic Neumann, chief Asia economist at HSBC.
All the same, efforts by policymakers to support big cities have failed to bolster confidence, underscoring the depth of the problems in the industry which slumped into a crisis two years ago.
The International Monetary Fund on Wednesday downgraded its 2023 and 2024 growth forecasts for China, saying the property slowdown could cause GDP to decline.
The International Monetary Fund (IMF) downgraded its 2023 and 2024 growth forecasts for China, saying its recovery was “losing steam” and citing weakness in its property sector.
The world’s second-largest economy is expected to expand by 5% this year and 4.2% next year, down from 5.2% and 4.5% in the IMF’s April forecast, the institution said.