China’s Economic Recovery Quickens In Q3 But Misses Forecasts

China stepped up its economic recovery in the third quarter from the coronavirus shock but missed forecasts, pointing to continued challenges for one of the few drivers of global growth this year.

Gross domestic product (GDP) grew 4.9% in July-September from a year earlier, the National Bureau of Statistics (NBS) said on Monday, slower than the median 5.2% forecast by analysts in a Reuters poll and following 3.2% growth in the second quarter.

KEY POINTS

– Q3 GDP +4.9% y/y (f’cast +5.2%, Q2 +3.2%)

– Q3 GDP +2.7% q/q (f’cast +3.2%, Q2 +11.5%)

– September industrial output +6.9% y/y (f’cast +5.8%, Aug +5.6%)

– September retail sales +3.3% y/y (f’cast +1.8%, Aug +0.5%)

– Jan-Sept fixed asset investment +0.8% y/y (f’cast +0.8%, Jan-Aug -0.3%)

 

MARKET REACTION

China’s major indexes erased some gains following the GDP data, with the benchmark Shanghai index trading 0.6% higher and the CSI300 index up 0.8% after rising as much as 1% and 1.2%, respectively.

COMMENTARY:

 

WOEI CHEN HO, ECONOMIST, UOB, SINGAPORE

“The 4.9% (GDP growth) was spot on for us. But previously, we were expecting fourth-quarter growth to be about 5.7% and if you look at the trajectory of the domestic demand recovery, I think above 6% should be in line. So for the full year, 1.9% is around the growth that we’re going to see for China this year.

“This will be driven by the tertiary industry. Industrial production has already recovered so much, and growth for the secondary industry is already the strongest since the first quarter of 2019. So, I think in the fourth quarter, you could see some of this easing.

“We don’t see the prospects of further interest rate cuts in China now. They will maintain support to the SMEs, and I think the focus is now on stimulating domestic demand.”

LARRY HU, HEAD OF CHINA ECONOMICS, MACQUARIE CAPITAL, HONG KONG

“I think it’s a pretty strong reading compared to … the second quarter. So, the recovery continues and in the fourth quarter we’re going to see it accelerate to maybe 5.5%, and then maybe 15% in the first quarter next year because of a very, very low base this year.

“If you look at monthly data in industrial production, retail sales — all point to a pretty strong recovery. And it also tells us that the engine of the recovery is changing because in the second quarter and third quarter, the recovery was largely driven by what I would call 50% of the economy, investment, exports. From now on, it is going to be driven more by the other 50% of the economy, especially consumption. So that’s why you see in the September data, retail sales actually beat consensus by a large margin.

“We already know something about the October data: Golden Week consumption was also pretty strong. So, in October, we’re going to see consumption, retail sales continue to accelerate for sure.

“The single most important thing for the Chinese economy in the coming months is whether service consumption can catch up.”

YOSHIKIYO SHIMAMINE, CHIEF ECONOMIST, DAI-ICHI LIFE RESEARCH INSTITUTE, TOKYO

“The GDP numbers came in slightly below expectations, but the monthly data shows there is no reason to be overly pessimistic.

“China’s economy remains on the recovery path, driven by a rebound in exports. Consumer spending is also headed in the right direction, but we cannot say it has completely shaken off the drag caused by the coronavirus.

“The problem is the labour market and wages remain a little weak, and this is holding back consumption.

“China needs to continuously roll out more policies to support domestic demand.

“There is a risk that the return of lockdowns in Europe and another wave of infections in the United States will hurt consumer spending and trigger more job losses, which would be a negative for China’s economy.”

IRIS PANG, CHIEF CHINA ECONOMIST, ING, HONG KONG

“I don’t think the headline number is bad, it’s just short of consensus. People are focused on the recent recovery.

“Job creation in China is quite stable, which creates more consumption because more people have jobs… what China calls ‘internal circulation’ is actually working.

“People who have jobs and can hold on to jobs actually don’t have any issues at all… I believe there will be no action from the PBOC, just on and off liquidity injection through daily operation. I think China does not need a new set of stimulus, unlike the U.S. or Europe, but more focused-based stimulus, like how to help those still jobless.”

FRANCES CHEUNG, HEAD OF MACRO STRATEGY FOR ASIA, WESTPAC, SINGAPORE

“The rebound in Q3 GDP was less strong than expected, but was still a decent 4.9% YoY. September data beat expectations, suggesting a pickup in momentum towards the latter part of Q3. The industrial production rose 6.9% YoY, even the lagging retail sales were up by 3.3% YoY and fixed-asset investment returned to growth of 0.8%. The pickup in momentum was broad-based, which bodes well for the Q4 outlook.”

 

BACKGROUND:

– The novel coronavirus first emerged in China last December. Tough lockdown measures to contain it brought economic activity to a near halt early this year, resulting in a 6.8% decline in GDP in the first quarter — the first contraction since at least 1992 when official quarterly GDP records started.

– China’s economy grew 3.2% in the second quarter from a year earlier, as lockdown measures ended and policymakers stepped up stimulus to combat the shock from the crisis.

– The pandemic is now largely under control, although there has been a small resurgence of cases in the eastern province of Shandong.

– Policymakers globally are pinning their hopes on a robust recovery in China to help restart demand as economies struggle with heavy lockdowns and a second wave of infections.

– China’s retail spending has lagged the comeback in factory activity as heavy job losses and persistent worries about infection kept consumers at home.

– In September, auto sales marked a sixth straight month of gains with a solid 12.8% growth. Domestic passenger flights in September, meanwhile, beat their COVID-19 levels, indicating that sector was approaching a full recovery.

– While the central bank stepped up policy support earlier this year after widespread travel restrictions choked economic activity, it has more recently held off on further easing.

– The government has rolled out a raft of measures, including more fiscal spending, tax relief and cuts in lending rates and banks’ reserve requirements, to revive the virus-hit economy.

Source: Reuters

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