China’s economic recovery will increase when consumption returns

China’s economic recovery accelerated in the third quarter as consumers postponed their coronavirus caution, but overall growth missed forecasts pointing to persistent challenges for one of the world’s few current demand engines.

Gross domestic product (GDP) grew by 4.9% in July-September from the year before, official data showed on Monday, slower than the average 5.2% expected by analysts in a Reuters poll and after 3.2% growth in the second quarter.

“The rebound in Q3 GDP was less strong than expected, but was still a decent 4.9% year-on-year,” said Frances Cheung, head of macro strategy for Asia at Westpac in Singapore.

“Data from September beat expectations, suggesting progress in the latter part of Q3 … The pickup in momentum was broadly based, which bodes well for the Q4 outlook.”

China’s yuan and major stock indices trimmed gains after the weak data than expected, with the benchmark Shanghai index trading 0.6% higher and the CSI300 index up 0.8% after rising 1% and 1.2% respectively.

The world’s second largest economy grew 0.7% in the first nine months of the previous year, the National Bureau of Statistics (NBS) said.

Policymakers globally are hoping for a robust recovery in China to help restart demand as economies struggle with heavy lockdowns and another wave of coronavirus infections.

China has steadily recovered from decades of low growth seen in the first months of the year caused by coronavirus shutdowns.

On a quarterly basis, GDP grew by 2.7% in July-September, NBS said, compared to expectations of a 3.2% increase and an 11.5% increase in the previous quarter. However, several recent indicators have also pointed to a broader increase in consumption in the third quarter.

Retail sales grew by 3.3% in September from the previous year, rising from a modest increase of 0.5% in August and showing the fastest growth since December 2019. Industrial production increased by 6.9% after an increase of 5.6% in August, showing the recovery of the manufacturing sector also maintaining momentum.

Investment in fixed assets increased 0.8% in the first nine months from the previous year, after being 0.3% in the first eight months.

The government has rolled out a number of measures this year, including more fiscal spending, tax cuts and cuts in lending rates and banks’ reserve requirements to revive the coronavirus-affected economy and support employment.

While the central bank intensified its political support earlier this year after extensive travel restrictions stifled economic activity, it has recently opted for further easing.

The International Monetary Fund has expected a 1.9% expansion for China for the full year, the only major economy expected to report growth in 2020.

Earlier in October, Prime Minister Li Keqiang warned that China needs to make a concerted effort to achieve its year-round economic goals, citing a complex domestic and foreign environment.

China’s retail spending has delayed its comeback in factory activity, as large job losses and persistent concerns over infections keep consumers at home, even when restrictions were lifted.

In the third quarter, however, there were several signs of a recovery in consumption.

In September, car sales marked a sixth consecutive month with solid growth of 12.8%. Ford Motor Co’s car sales in China increased by 25% in the September quarter from the previous year.

Domestic passenger flights in September, meanwhile, hit their Covid-19 levels, indicating that the sector is nearing full recovery.

The COVID-19 pandemic that caused China’s first contraction since at least 1992 in the first quarter is now largely under control, although there has been a slight resurgence of cases in eastern Shandong province.

(REUTERS)