China’s economy experienced stronger-than-expected growth in the third quarter, indicating that recent stimulus measures are beginning to have a positive impact. Gross domestic product (GDP) grew by 4.9% year-on-year in the July-September period, surpassing analysts’ expectations and accelerating from the 6.3% expansion in the second quarter. On a quarter-by-quarter basis, GDP grew by 1.3% in Q3, outpacing the revised 0.5% growth in Q2. These figures suggest that the measures implemented by the country’s authorities to boost the economy are starting to gain traction, despite challenges posed by a property crisis and other headwinds.
Industrial output and retail sales in September also exceeded forecasts, further supporting the notion of a tentative recovery. Industrial output grew by 4.5% year-on-year in September, beating expectations of a 4.3% increase, while retail sales rose by 5.5% compared to a 4.6% increase in August, surpassing the predicted 4.9% expansion.
The Chinese government has been navigating several challenges as it seeks to restore economic equilibrium. These challenges include a domestic property crisis, high youth unemployment, depressed private sector confidence, a slowdown in global growth, and tensions with the United States over trade, technology, and geopolitics. In response, Beijing has introduced a series of measures to stimulate growth. However, concerns over debt risks and a weak yuan have limited the effectiveness of these measures.
The better-than-expected Q3 data has prompted international banks to upgrade their growth outlook for China in 2023. Nomura raised its forecast to 5.1% from 4.8%, JPMorgan increased its forecast to 5.2% from 5%, and Moody’s Analytics raised its projection to 5% from 4.9%. This suggests that the government’s full-year growth target of around 5.0% is likely to be achieved.
While the data is encouraging, analysts warn that a deepening downturn in the property sector poses a significant challenge to policymakers. Investment in the sector fell by 9.1% in the first nine months of 2023 compared to the same period last year, and private sector confidence remains weak. Efforts to support the property market in major cities have failed to boost confidence, highlighting the severity of the industry’s problems.
In response to these challenges, analysts anticipate further stimulus measures, including interest rate cuts, eased homebuying restrictions, and increased state-directed infrastructure spending. The International Monetary Fund recently downgraded its growth forecasts for China, citing concerns over the property slowdown and its potential impact on GDP.
Overall, China’s stronger-than-expected economic growth in the third quarter is a positive sign for the country’s recovery. However, the property crisis and other challenges remain significant hurdles that policymakers must overcome to ensure sustained and stable growth in the future.