(Reuters) – China’s economy slowed sharply in the fourth quarter due to stringent COVID curbs, dragging down 2022 growth to one of its worst in nearly half a century and raising pressure on policymakers to unveil more stimulus this year.
Gross domestic product (GDP) grew 2.9% in October-December from a year earlier, data from the National Bureau of Statistics (NBS) showed on Tuesday, slower than the third-quarter’s 3.9% pace. The rate still exceeded the second quarter’s 0.4% expansion and market expectations of a 1.8% gain.
On a quarterly basis, GDP came in at 0.0% in the fourth quarter, compared with growth of 3.9% in July-September.
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KEY POINTS
* Q4 GDP +2.9% y/y (f’cast +1.8%, Q3 +3.9%)
* Q4 GDP 0.0% q/q s/adj (f’cast -0.8%, Q3 +3.9%)
* Full-year 2022 +3.0% (f’cast 2.8%, 2021 8.4%)
* December industrial output +1.3% y/y (f’cast +0.2%, November +2.2%)
* Dec retail sales -1.8% y/y (f’cast -8.6%, November -5.9%)
* Jan-Dec fixed asset investment +5.1% y/y (f’cast +5.0%, Jan-Nov +5.3%)
* Jan-Dec property investment -10.0% y/y (Jan-Nov -9.8%)
* China Dec survey-based jobless rate for 16-24 years old at 16.7%
* China’s population in 2022 shrinks for the first time since 1961
MARKET REACTION:
There was muted reaction to the data in Chinese stock markets and the yuan currency. Both have performed strongly this year on hopes for a solid post-COVID recovery.
COMMENTARY:
ZHIWEI ZHANG, CHIEF ECONOMIST, PINPOINT ASSET MANAGEMENT, HONG KONG
“China’s economy likely bottomed in December. This first wave of COVID-19 happened much faster than I expected. For many cities in China, the peak of the first wave (has) likely already passed. High frequency indicators, such as traffic congestion index, rebounded sharply in January. As mobility normalises, consumption is recovering as well.”
“China’s population declined the first time since 1961. The population will likely trend down from here in the coming years. This is very important, with implications for potential growth and domestic demand. China cannot rely on demographic dividend as a structural driver for economic growth. Going forward, demographics will be a headwind. Economic growth will have to depends more on productivity growth, which is driven by government policies.”
IRIS PANG, GREATER CHINA ECONOMIST, ING, HONG KONG
“The biggest surprise is the retail sales number, which is really a big beat… I would expect that retail sales could be a jump in the first quarter, and therefore, first-quarter GDP could also rise.”
“But China is not just about COVID. I think we can say that it will be over in 2023, but a new challenge for China will be that external demand will be weak. Monetary policy doesn’t really help because this is an external thing, the only policy left is fiscal and I expect strong support this year on infrastructure.”
KEN CHEUNG, CHIEF ASIAN FX STRATEGIST, MIZUHO BANK, HONG KONG
“China data came in less worse than expected across the board, reflecting less severe disruptions from the lockdown and massive infection.”
“The less worse-than-expected data did little to boost the RMB exchange rate as attention has shifted to 2023 recovery, especially the data after the Chinese New Year break.”
“Investors may also hold scepticism on the data for December, given the distortion caused by the COVID outbreak and the larger statistical error in data collection in the period.”
“We believe that the data impact will prove to be short-lived and the RMB will be more driven by the USD movement in the near term.”
ZHOU HAO, CHIEF ECONOMIST AT GUOTAI JUNAN INTERNATIONAL, HONG KONG
“China’s GDP report came in much better than expected, with Q4 GDP gaining 2.9% y/y, much better than market consensus at 1.6%. For the whole year, the economy expanded by 3%, largely in line with our expectations.”
“In general, this is a positive GDP report, and lays a solid ground for the economy to recover in the coming year. We believe both consumption and investment will see further improvement in the next few quarters, as the reopening has been gaining momentum and the government will add more impetus on infrastructure investment.”
“We see the government will set the growth target at around 5% in the National People’s Congress in March, which looks pretty attainable for now.”
BACKGROUND:
* Analysts polled by Reuters had expected China’s economic growth to slow sharply to 3% in 2022, weighed down by widespread COVID lockdowns and infections, but it is likely to rebound to 4.9% in 2023 after strict anti-virus curbs were lifted in December.
* Chinese leaders have pledged to spur the world’s second-largest economy this year while addressing some key drags on growth, notably a severe property sector downturn. Exports are also expected to remain weak as the global economy teeters on the brink of recession, highlighting the importance of boosting domestic demand to drive a recovery in 2023.
* Residents of China are increasingly on the move after the sudden reversal last month of heavy COVID-19 curbs, despite a surge in infections, pointing to a gradual recovery in consumption and economic activity this year. Still, some indicators show activity has not fully recovered to levels of just a few months ago, let alone pre-pandemic levels.
(Reporting by Asian bureaus; Compiled & edited Subhranshu Sahu)
