China's growth stumble spurs calls for stimulus action
The Chinese economy expanded 5.2% yoy in Q4 of 2023, faster than a 4.9% growth in Q3 but less than market forecasts of 5.3%.
Chinese GDP Achieves 2023 goal, but deflation and property challenges persist
Focus shifts to how policymakers will step up support in 2024
In the final quarter of 2023, China's economy exhibited resilience, expanding by 5.2% year-on-year, surpassing the 4.9% growth recorded in Q3. However, this figure fell slightly short of market expectations, which had anticipated a growth rate of 5.3%. Despite the upbeat end to the year, the full-year GDP growth of 5.2% signaled the slowest expansion in over three decades. This subdued performance was attributed to the prolonged property crisis and weakened consumer spending.
The Chinese government's target of around 5.0% was exceeded, highlighting the nation's ability to navigate challenges. Nevertheless, the economy faces headwinds, notably the property market downturn and subdued consumption. December saw the steepest decline in home prices in almost nine years, accompanied by retail sales figures below consensus. A broad measure of price changes indicated the longest stretch of quarterly declines since the aftermath of the Asian Financial Crisis in 1999.
Wednesday's data release painted a nuanced picture of China's economic landscape. While indicators point to stable consumption and services, the persistent challenges in the real estate sector present a dichotomy for households, corporates, and investors in 2024. The macro perspective appears resilient, but the glass seems either half-full or half-empty, depending on one's vantage point.
The Hang Seng index is experiencing its most significant two-day loss since October 2022, reflecting market concerns. Furthermore, yields on China's 10-year government bonds hover near a two-decade low, indicative of prevailing economic uncertainties.
Deflationary pressures continue to linger, with recent data revealing a third consecutive monthly drop in prices. The GDP deflator, a comprehensive measure of prices, declined by 1.5% in the October-to-December period. This marks the third consecutive quarter of price declines, underscoring the persistent deflationary trends.
The property slump remains a formidable threat, impacting business investment, job creation, and consumer spending. December's sharp decline in home prices, coupled with a 7.8% year-on-year decrease in spending on construction and decoration for the entire year, underscores the severity of the challenges. Housing new starts, a crucial gauge of developer confidence, plummeted by 20.9%, emphasizing the depth of the concerns within the real estate sector.
As China looks toward 2024, the announcement of the GDP growth target in early March will be closely watched. Navigating the delicate balance between stabilizing consumption and addressing real estate challenges will be crucial for sustaining economic momentum in the face of uncertainties.