China's economy grew at a faster-than-expected clip in the third quarter from a year earlier, official data showed on Wednesday, suggesting the recent recovery may carry enough steam to reach Beijing's full-year growth target.
Gross domestic product (GDP) grew 4.9% in July-September from the year earlier, data released by the National Bureau of Statistics showed, versus analysts' expectations in a Reuters poll for a 4.4% increase but slower than the 6.3% expansion in the second quarter.
On a quarter-by-quarter basis, GDP grew 1.3% in the third quarter, accelerating from a revised 0.5% in the second quarter, and the rate was above the forecast for growth of 1.0%.
Thanks to a slew of policy measures in recent months, the world's second-biggest economy has started to show signs of stabilising, but a protracted property crisis, uncertainties over employment and household income and weak confidence among private firms pose risks to a durable revival.
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KEY POINTS
* Q3 GDP +4.9% y/y (f'cast +4.4%, Q2 +6.3%)
* Q3 GDP +1.3%% q/q s/adj (f'cast 1.0%, Q2 +0.5%)
* Sept industrial output +4.5% y/y (f'cast +4.3%, Aug +4.5%)
* Sept retail sales +5.5% y/y (f'cast +4.9%, Aug 4.6%)
* Jan-Sept fixed asset investment +3.1% y/y (f'cast +3.2%, Jan-Aug +3.2%)
* Jan-Sept property investment -9.1% y/y (Jan-Aug -8.8%)
* Jan-Sept property sales by floor area -7.5% y/y (Jan-Aug -7.1%)
MARKET REACTION: The yuan strengthened as much as 0.35% to 7.2905 per dollar after the data release, before giving up some gains. The Chinese currency on Tuesday hit one-month lows, pressured by the firming dollar, a weak economy, and a widening yield gap between China and the U.S. The yuan has lost about 5.5% against the dollar so far this year.
Chinese stocks were muted after the GDP data release. Both the Shanghai Composite index and the blue-chip CSI 300 Index were down about 0.5% in early morning trading.
COMMENTARY:
JEFF NG, HEAD OF ASIA MACRO STRATEGY, SMBC, SINGAPORE
"The data was stronger than expected, putting China on track to reach the government's target of 5% growth. Retail sales improved, though markets are still cautious of the recovery with the yuan still trading close to the weak end of PBOC's fixing band."
MATT SIMPSON, SENIOR MARKET ANALYST, CITY INDEX, BRISBANE
"It seems that all of that stimulus is finally beginning to take effect, with a broad beat from growth, retail sales, industrial production and unemployment. Fixed asset may have disappointed, but you rarely get them all.
"But on the back of such (a) disappointing Q2, I think Beijing will be happy with the progress. Perhaps the World Bank and IMF may have to lift their recently downgraded forecasts for China."
CHI LO, SENIOR MARKET STRATEGIST - ASIA PACIFIC, BNP PARIBAS ASSET MANAGEMENT, HONG KONG
"The fourth-quarter GDP will likely come in above 5% given the broader easing that Beijing has implemented since August. Assuming the easing continues in the coming months, full-year 2023 GDP growth can still hit the government's 5% target. With more easing in the cards, 2024 growth could hit 5%, or higher."
"But these base cases are contingent upon Beijing continuing its broader easing measures, and barring any major credit events. If Beijing normalises policy too early, or some major credit events hot, growth momentum could falter again as public (consumer and private sector) confidence is still fragile."
WOEI CHEN HO, UOB, ECONOMIST, SINGAPORE
"It pretty much means the growth target for this year of around 5% will be achieved, maybe slightly above, like 5.1% or 5.2%, as the fourth-quarter last year was a low base.
"Retail sales shows that recovering momentum in spending is still there. The main letdown was that property investment contracted more than expected, so some of these support measures that were announced in July and August didn't seem to have lasting impact to lift the property market.
"The key question is the pace of recovery. Will it be strong or weak? The property market is a big problem that won't be solved in the near term. We should be expecting 4% or 5% growth to be maintained in China this year and next year."
CHRISTOPHER WONG, CURRENCY STRATEGIST, OCBC, SINGAPORE
"The upbeat China data continues to point to signs of stabilisation in the economy and reinforces our view of a glass half full. This should help to keep Asian FX supported while the U.S. dollar trades on a backfoot."
TORU NISHIHAMA, CHIEF ECONOMIST, DAI-ICHI LIFE RESEARCH INSTITUTE, TOKYO
"The headline number appeared stronger than expected due to unexpectedly strong production and firm household consumption after the lifting of the zero-COVID policy. However, the real estate sector that accounts for 20% of GDP remains a source of concern. Overall, you can say that the economy continues to expand despite some problems."
"This GDP data affirmed China is on track to achieve its growth target around 5% this year unless the economy comes to a halt. Going forward, the pace of growth will slow down further."
"But there is room for Chinese authorities to roll out fiscal as well as monetary stimulus to prop up the economy as needed, although property market slump could restrict local governments' ability to deploy stimulus spending."
ROB CARNELL, ASIA-PACIFIC HEAD OF RESEARCH, ING, SINGAPORE
"Pretty much all of the activity numbers were better than had been expected. The real star of this is the retail sales data. What it does is it puts 5% annual growth achievement back on the radar...it slightly reduced the imperative on the central government to come up with some new plans to try and invigorate the economy which seems to be stabilizing on its own anyway, so the market could read this one or two ways."
"Overall, the numbers weren't so unbelievably good that you you'd go right well, no need to worry any more."
TINA TENG, MARKETs ANALYST, CMC MARKETS, AUCKLAND
"China's economic data signals the economy hit bottom in the second quarter, and the momentum is likely to continue in the fourth quarter. The probability of meeting the 5% full-year growth target has largely increased lately based on recent economic data, which suggests that the government's efforts to aid its economy have taken effect."
"However, the global impact remains an issue for its growth amid weakened demands, pressure on its exports, and geopolitical tensions sparked by the wars."
FREDERIC NEUMANN, CHIEF ASIA ECONOMIST & CO-HEAD - GLOBAL RESEARCH, HSBC, HONG KONG
"China's economy is flickering back to life...some of the headlines in recent months have exaggerated the weakness, as there have consistently been green shoots – consumer demand, car sales, etc. Overall, there's still a lot of momentum coming through, putting the government's target of around 5% within reach."
"From a market perspective, it is quite reassuring to see better economic data, but anyone hoping for stimulus might be disappointed."
"In the grand scheme of things... individual developers running into further financial turbulence will likely not be enough to derail things. The problems of the developers have been known to the market for some while now."
JOSEPH CAPURSO, HEAD OF INTERNATIONAL ECONOMICS AT COMMONWEALTH BANK OF AUSTRALIA, SYDNEY
"It was a big upward surprise to the Q3 GDP. There was also a downward revision to the Q2 GDP, so overall things were only slightly stronger than what we thought it was going to be. I think it's a positive. The renminbi reacted in a big way.
"When we analyze these numbers, we look at the month-on-month numbers. They were worse than August numbers. So, we don't think things are really that great in China. It's improving but not by much.
"July numbers were even worse than the August and the September numbers, so they're probably past the worst, but this is not a rapid recovery. We still think authorities in China need to do some more policy stimulus."
ALVIN TAN, HEAD OF ASIA FX STRATEGY, RBC CAPITAL MARKETS, SINGAPORE
"The strong set of China macro data suggests that the year's 'around 5%' official growth target will likely be reached. Monthly PMI data had indicated a slight strengthening of economic activity over the third quarter.
"On the flipside, there is little evidence that growth is reviving strongly. Property investment sank further ... deepening the decline that started last year.
"The drag from property and housing is a heavyweight on the economy and domestic financial markets, and is likely to persist for some time."
TAO CHUAN, CHIEF MACRO ANALYST AT SOOCHOW SECURITIES, BEIJING
"The data was better than expected. It sends a strong signal that the full-year 5% target can be achieved given the low base effect for the fourth quarter."
"Consumption growth is accelerating, the manufacturing investment is stabilizing. What is encouraging is that manufacturing and infrastructure investment have offset some of the downward pressure brought by the real estate. The previous easing measures played a certain role."
"We expect full-year GDP to be between 5.2% and 5.3%. However, there are still no signs of stabilization in the real estate value chain, which could weigh on the overall confidence."
CHARU CHANANA, MARKET STRATEGIST, SAXO, SINGAPORE
"China's growth data has confirmed the early signals we got from PMIs on potential bottoming of the economy. Having a floor, however, is different from reaching for the stars. The property sector overhang in China could still keep the consumer and investment confidence weak, suggesting a bumpy recovery ahead. Adding to downside risks are also the expanded U.S. chip curbs and a deteriorating global growth outlook."
ZHIWEI ZHANG, PRESIDENT AND CHIEF ECONOMIST, PINPOINT ASSET MANAGEMENT, HONG KONG
"China's economic recovery continued in September, driven by better-than-expected retail sales. This is consistent with the travel and expenditure data during the October Golden Week. The improvement in Q3 economic data makes it less likely for the government to launch stimulus in Q4, as the growth target of 5% is set to be achieved."
"The focus of the government and the market will shift to the growth outlook for next year. The key issue is what growth target the government will set and how much fiscal easing will take place."
BACKGROUND:
* The world's second-largest economy faltered in the second quarter after a brief post-COVID recovery, dragged by a property downturn and huge debt due to a decades-long infrastructure binge.
* China's exports and imports have continued to decline, although at a slower pace. And while bank lending has jumped, persistent deflationary pressures underline the challenges policymakers face in trying to revive activity.
* Economists remain concerned about the crisis-hit property sector, employment and household income and weak confidence among some private firms.
* The government has set a full year 2023 growth target of around 5.0%.
* The central bank rolled over maturing medium-term policy loans earlier this week, while keeping the interest rate unchanged, matching market expectations.
* Beijing may step up fiscal stimulus to get activity on a more solid footing, though the impact may not be felt until well into 2024, analysts said. The central bank is constrained in how much it can ease monetary policy for fears of hurting the yuan.
* In September, the central bank cut the RRR - the amount of cash that banks must hold as reserves - for the second time this year to boost liquidity and support the economic recovery. Other policy support included interest rate cuts, property easing and efforts to shore up the private sector.
(Reporting by Asian bureaus; Compiled and edited Rashmi Aich)