China’s GDP expanded at its slowest pace since the mid-1970s bar the Covid-hit 2020 year, as the world’s second-largest economy struggled under tight pandemic restrictions that were abruptly ditched late in 2022.
The economy grew 3% last year, well shy of the 5.5% pace the government had targeted at the start of the year and the 8.1% recorded for 2021. The actual rate though, was better than the 2.7% predicted by the World Bank earlier this month.
Analysts will focus on the December quarter growth tally of 2.9%, which exceeded market forecasts of 1.8%, according to Reuters. The economy was roughly static compared with the previous three month, dodging the 0.8% retreat pundits had tipped.
The figures meant China’s GDP rose at the slowest pace in about half a century if the 2.2% expansion in the first Covid year of 2020 is excluded.
For most of the last three years, the Chinese government persisted with rolling lockdowns and mass testing under its Zero-Covid strategy to stop the virus spreading. It abandoned the policy early last month with little warning and without preparations for vaccination campaigns or other medical measures.
Still, the policy shift has been widely interpreted as likely to help spur economic growth in China in 2023 and beyond. The World Bank forecasts GDP growth will quicken to 4.3% this year and 5% the next, expectations that are now being exceeded by many private economists.
China's GDP had been slowing for a decade before reaching 2.24% in 2020, its slowest pace since the mid-1970s. Before that, growth sharply amid political campaigns such as the 'Great Leap Forward' and the Cultural Revolution. (Source: Macrotrends) pic.twitter.com/CiSIglgofD
— @phannam@mastodon.green (@p_hannam) January 17, 2023
Uncertainties include how the soaring death toll – officially 60,000 in the past month or so alone – will affect wider confidence among consumers. Disruptions to supply chains as workers call in sick may dent the recovery and affect economies reliant on Chinese imports.
The health of the giant property market will be another threat to an economic revival with real estate prices continuing to fall in the final months of 2022. New government support packages to encourage buyers are likely in coming months.
China’s growth has a big influence on its neighbours – and nations such as Australia – with its voracious demand for iron ore, gas and other commodities. In the wake of the GDP release, shares in BHP, Rio Tinto and Fortescue – Australia’s three largest iron ore miners – were down 1.1%-1.7% compared with a 0.1% decline for the overall market.
David Bassanese, chief economist for Betashares, said that while official statistics always needed “to be taken with a grain of salt”, the GDP figures were “much better than feared in the final months of 2022”.
Retail spending and industrial production were also stronger than market expectations in the month of December alone, he said.
“This suggests the economy may have already begun to benefit from the partial reduction in Covid restrictions last month and is well placed to rebound even more strongly in the first few months of this year,” Bassanese said.
Shares of commodity producers should benefit from any acceleration of growth, he said, adding: “it also suggests this could be a banner year for the Chinese stock market”.
Some critics, though, raised doubts about the veracity of annual data that are released early in the new year – despite the size and complexity of the economy – and typically don’t get revised until years later, if at all.
Bloomberg cited Kang Yi, director of the national bureau of Statistics, as saying consumption contributed one-third, or one percentage point of China’s annual growth rate. Higher consumption appeared at odds, though, with the scale of the country’s lockdowns during 2022.
Here was the Covid situation for the final quarter of 2021, which had lockdowns in Xian and restrictions in the north and east. While the measures back then were tighter, the outbreaks paled in comparison to final quarter of 2022. Yet the econ, officially, grew 2.9% yoy in Q4… pic.twitter.com/1QucK0FADE
— Bill Birtles (@billbirtles) January 17, 2023
In December alone, retail sales were down 1.8%, a much better result than the 9% slump economists surveyed by Bloomberg had predicted.
After the dismantling of the zero-Covid policy, the virus spread rapidly through the economy, with millions of people catching it, leaving many sick off work.
The retail figure for December “jars with the turmoil and fear reported across major cities as Covid-zero was abandoned, but the survey detail makes sense of the situation,” said Elliot Clarke, Westpac’s senior economist.
Services such as catering came under substantial pressure as fears over the virus spread, with annual growth in the sector sinking from a minus 8.4% annual rate in November to minus 14.1% in December, he said.
This decline in activity was offset by precautionary purchases of medicine – which quickened 39.8% year on year in December, from an 8.3% rate in November – and food spending jumped to an annual pace of 10.5% in December, almost tripling the 3.9% rate in November.
Capital investment contributed 1.5 percentage points of growth last year as authorities continued to pour funds into new rail lines, bridges and other infrastructure. Resource exporters will be banking on further expansion in 2023 particularly as net export growth will be harder to achieve as rich economies in Europe and North America slow with some headed for recession.
“Overall, the December data round supports our long-held view that China’s economy is well positioned to not only rebound from Covid-zero, but also to grow strongly into the medium-term, averaging growth of 5% or more through 2022-2024,” Clarke said.
With Reuters
