Anticipated data on Wednesday is projected to reveal a 5.3% year-on-year growth in GDP of China for October-December, up from the 4.9% in the third quarter. On a quarterly basis, the economy is predicted to grow 1.0% in Q4, a slowdown from the 1.3% in July-September, highlighting ongoing weak momentum despite policy interventions.
For 2023, the economy likely expanded by 5.2%, partly due to the low-base effect from COVID-19 lockdowns the previous year. In 2022, the economy grew only 3%, significantly missing the official target due to strict COVID measures.
Despite expectations, China has struggled to achieve a robust post-COVID recovery, facing challenges such as a prolonged property crisis, diminished consumer and business confidence, escalating local government debts, and global economic weakness.
Beijing had set a growth target of around 5% for 2023, and insiders suggest a similar goal for 2024. Analysts foresee a growth slowdown to 4.6% in 2024 and further easing to 4.5% in 2025, potentially prompting policymakers to introduce additional stimulus measures to restore confidence amid the property downturn.
Recent data indicates a shaky start to 2024, with persistent deflationary pressures, a modest uptick in exports unlikely to spur factory activity, and weak December bank lending. The year-end data release on Wednesday, particularly GDP growth, is crucial for shaping sentiment toward China in 2024.
Disappointment among investors in China’s 2023 performance led to the yuan reaching a 16-year low, and the combined market capitalization of Shanghai, Shenzhen, and Hong Kong-listed stocks experiencing substantial declines.
Further easing measures are still anticipated as China prepares to release separate data on December activity alongside Wednesday’s GDP data. Factory output growth is expected to stabilize, while consumption growth is predicted to slow, and investment remains lackluster.
Retail sales, a crucial indicator of consumption, are projected to grow by 8.0% in December compared to the previous year, a deceleration from the 10.1% increase in November. Factory output is anticipated to increase by 6.6% year-on-year in December, matching the rise seen in November.
The People’s Bank of China (PBOC) has committed to intensifying policy support for the economy in 2024 and encouraging a rebound in prices. Despite market expectations for a rate cut, the PBOC opted to keep the medium-term policy rate unchanged on Monday, citing pressure on the yuan’s value.
Analysts surveyed by Reuters anticipate a 10 basis points cut in the one-year loan prime rate (LPR), the benchmark lending rate, in the first quarter. Despite the surprise decision, experts still expect the PBOC to implement two rounds of policy rate cuts and one reserve requirement ratio (RRR) cut in the first half of 2024, given the ongoing economic downturn and the expected acceleration of pent-up demand post the Chinese New Year holidays in February, according to Ting Lu, chief China economist at Nomura.
The government, which previously announced a 1 trillion yuan ($139.22 billion) sovereign bond issuance in October to finance investment projects, is likely to continue with additional fiscal spending to stimulate growth, as suggested by analysts.
According to Reuter.
By. Pham Thanh Bien
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