China's economy grew at a faster-than-expected rate in the third quarter, while consumer and industrial activity in September also surprised on the positive, indicating that the recent flurry of policy measures is bolstering a fragile recovery.
Rapidly weakening growth in the world's second-largest economy since the second quarter prompted authorities to step up support measures, with Wednesday's data indicating the stimulus is starting to take effect, though a property crisis and other headwinds remain risks to the outlook.
The gross domestic product (GDP) increased 4.9% year on year in July-September, according to National Bureau of Statistics data, above analysts' forecasts in a Reuters poll for a 4.4% increase but slower than the 6.3% expansion in the second quarter.
On a quarterly basis, GDP increased 1.3% in the third quarter, up from a corrected 0.5% in the second quarter and exceeding the 1.0% growth projection.
"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 attempting to restore economic equilibrium while navigating a domestic property crisis, high youth unemployment, low private sector optimism, a downturn in global growth, and Sino-US disputes over trade, technology, and geopolitics.
Beijing has unveiled a slew of measures in recent weeks, but its ability to spur growth has been hampered by concerns about debt risks and a frail yuan, which has been battered this year by widening yield differentials as global interest rates remain elevated, led by the Federal Reserve's tightening campaign.
Asian markets recovered some of their losses following better-than-expected Chinese data, while the yuan, as well as the trade-dependent Australian and New Zealand dollars, also rose.
The Chinese yuan reached a one-week high of 7.2905 per dollar.
The recovery momentum suggests that the government's full-year growth target of roughly 5.0% in 2023 is likely to be met.
"The improvement in Q3 economic data makes it less likely for the government to launch stimulus in Q4, 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."
According to the statistics bureau, China will be able to meet the 2023 growth target if fourth-quarter growth exceeds 4.4%.
The better-than-expected statistics has caused foreign banks to raise their growth forecasts for 2023, with Nomura increasing its projection to 5.1% from 4.8% before and JPMorgan increasing its forecast to 5.2% from 5%.
Moody's Analytics boosted its 2023 growth forecast to 5% from 4.9%.
According to separate data, industrial output increased at a faster-than-expected 4.5% year on year in September, but the rate remained constant from August. Analysts had predicted a 4.3% rise.
Retail sales, a measure of consumption, too above expectations, climbing 5.5% this month, accelerating from a 4.6% increase in August.
Analysts predicted a 4.9% increase in retail sales.
Fixed asset investment increased 3.1% year on year in the first nine months of 2023, exceeding estimates for a 3.2% increase. It grew 3.2% between January and August.
However, economists say that a growing downturn in the property industry, which accounts for about a quarter of economic production, provides a significant challenge to policymakers as they seek to keep GDP on pace.
The most recent data confirmed such fears. Property investment declined 9.1% year on year in the first nine months of 2023, following an 8.8% drop in January-August. Private fixed-asset investment declined 0.6% year on year in January-September, suggesting a lack of trust in the private sector.
Some of the country's largest developers have been impacted by the country's ailing real estate market.
Country Garden Holdings, China's largest private property developer, had a grace period for a $15 million coupon payment expire earlier in the day, fueling speculation 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 and co-head of Global Research at HSBC.
Nonetheless, officials' efforts to encourage big cities have failed to boost confidence, highlighting the severity of the issues in the industry, which entered a recession two years ago.
"In the near-term, our expectations are still for a further round of 10bp rate cuts in Q4 from the PBOC, a step-up in the easing of homebuying restrictions, and modest increases in state-directed infrastructure spending," said Louise Loo, China economist at Oxford Economics, in a note.
The International Monetary Fund cut its growth predictions for China for 2023 and 2024 on Wednesday, warning the property slump could force the Asian giant's GDP to fall.
(Source:www.straitstimes.com)
Rapidly weakening growth in the world's second-largest economy since the second quarter prompted authorities to step up support measures, with Wednesday's data indicating the stimulus is starting to take effect, though a property crisis and other headwinds remain risks to the outlook.
The gross domestic product (GDP) increased 4.9% year on year in July-September, according to National Bureau of Statistics data, above analysts' forecasts in a Reuters poll for a 4.4% increase but slower than the 6.3% expansion in the second quarter.
On a quarterly basis, GDP increased 1.3% in the third quarter, up from a corrected 0.5% in the second quarter and exceeding the 1.0% growth projection.
"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 attempting to restore economic equilibrium while navigating a domestic property crisis, high youth unemployment, low private sector optimism, a downturn in global growth, and Sino-US disputes over trade, technology, and geopolitics.
Beijing has unveiled a slew of measures in recent weeks, but its ability to spur growth has been hampered by concerns about debt risks and a frail yuan, which has been battered this year by widening yield differentials as global interest rates remain elevated, led by the Federal Reserve's tightening campaign.
Asian markets recovered some of their losses following better-than-expected Chinese data, while the yuan, as well as the trade-dependent Australian and New Zealand dollars, also rose.
The Chinese yuan reached a one-week high of 7.2905 per dollar.
The recovery momentum suggests that the government's full-year growth target of roughly 5.0% in 2023 is likely to be met.
"The improvement in Q3 economic data makes it less likely for the government to launch stimulus in Q4, 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."
According to the statistics bureau, China will be able to meet the 2023 growth target if fourth-quarter growth exceeds 4.4%.
The better-than-expected statistics has caused foreign banks to raise their growth forecasts for 2023, with Nomura increasing its projection to 5.1% from 4.8% before and JPMorgan increasing its forecast to 5.2% from 5%.
Moody's Analytics boosted its 2023 growth forecast to 5% from 4.9%.
According to separate data, industrial output increased at a faster-than-expected 4.5% year on year in September, but the rate remained constant from August. Analysts had predicted a 4.3% rise.
Retail sales, a measure of consumption, too above expectations, climbing 5.5% this month, accelerating from a 4.6% increase in August.
Analysts predicted a 4.9% increase in retail sales.
Fixed asset investment increased 3.1% year on year in the first nine months of 2023, exceeding estimates for a 3.2% increase. It grew 3.2% between January and August.
However, economists say that a growing downturn in the property industry, which accounts for about a quarter of economic production, provides a significant challenge to policymakers as they seek to keep GDP on pace.
The most recent data confirmed such fears. Property investment declined 9.1% year on year in the first nine months of 2023, following an 8.8% drop in January-August. Private fixed-asset investment declined 0.6% year on year in January-September, suggesting a lack of trust in the private sector.
Some of the country's largest developers have been impacted by the country's ailing real estate market.
Country Garden Holdings, China's largest private property developer, had a grace period for a $15 million coupon payment expire earlier in the day, fueling speculation 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 and co-head of Global Research at HSBC.
Nonetheless, officials' efforts to encourage big cities have failed to boost confidence, highlighting the severity of the issues in the industry, which entered a recession two years ago.
"In the near-term, our expectations are still for a further round of 10bp rate cuts in Q4 from the PBOC, a step-up in the easing of homebuying restrictions, and modest increases in state-directed infrastructure spending," said Louise Loo, China economist at Oxford Economics, in a note.
The International Monetary Fund cut its growth predictions for China for 2023 and 2024 on Wednesday, warning the property slump could force the Asian giant's GDP to fall.
(Source:www.straitstimes.com)
