China economic system expands 5.4% y/y in This fall, beating market forecast

BEIJING (Reuters) -China’s economic system ended 2024 on higher footing than anticipated helped by a flurry of stimulus measures, though the specter of a brand new commerce struggle with the USA and weak home demand may harm confidence in a broader restoration this yr.

For the full-year 2024, the world’s second-largest economic system grew 5.0%, assembly the federal government’s annual development goal of round 5%. Analysts had forecast 4.9% development.

The economic system grew 5.4% within the fourth quarter from a yr earlier, considerably beating analysts’ expectations and marking the quickest because the second quarter of 2023.

KEY POINTS

* 2024 GDP +5.0% (versus goal of round 5%)

* This fall GDP +5.4% y/y (f’forged +5.0%, Q3 +4.6%)

* This fall GDP +1.6% q/q s/adj (f’forged 1.6%, Q3 +1.3% revised)

* Dec industrial output +6.2% y/y (f’forged +5.4%, Nov +5.4%)

* Dec retail gross sales +3.7% y/y (f’forged +3.5%, Nov +3.0%)

* 2024 fastened asset funding +3.2% (f’forged +3.3%, Jan-Nov +3.3%)

* 2024 property funding -10.6% (Jan-Nov -10.4%)

* Fears of extra U.S. commerce tariffs clouding 2025 outlook

MARKET REACTION:

China’s fundamental Shanghai inventory market was up 0.3%, whereas the blue-chip CSI 300 index was 0.4% greater after the information launch. The yuan was little modified in opposition to the greenback.

COMMENTARY:

ELLIOT CLARKE, SENIOR ECONOMIST, WESTPAC, SYDNEY

“General, these are outcomes as anticipated, and what’s driving them is anticipated as properly that exterior sector. And actually to verify they’re in a robust place to climate the uncertainty round U.S. tariffs, and to verify shoppers do not get caught, they should do extra with coverage by means of February and March after we get the congress assembly.

“They’ll lower rates of interest a bit additional this yr and lower triple R to help liquidity. So that each one continues, however actually the driving drive for the expansion outlook needs to be the fiscal aspect.

“They’ll obtain shut to five% development in 2025. That is on the belief that they do take that energetic stance with coverage and it is on the belief as we’ve seen with commerce this yr they’ve themselves into a very good place when it comes to avoiding U.S. tariffs.”

GARY NG, SENIOR ECONOMIST, NATIXIS, HONG KONG

“The underlying headwind is fiercer than the headline GDP quantity suggests. With robust web export development and extra supportive stimulus, some constructive momentum has been brewing within the economic system in the direction of stabilisation.

“Nonetheless, home demand has remained weak with out a rebound in industrial manufacturing and retail gross sales, particularly because the property sector nonetheless drags funding. If China needs to attain a development charge above 4.5% in 2025, it would want sharper rate of interest cuts and extra demand-side fiscal insurance policies.”

LYNN SONG, CHIEF ECONOMIST FOR GREATER CHINA, ING, BASED IN HONG KONG

“After reaching the expansion goal in 2024, the important thing query for 2025 is the place policymakers will set the expansion goal on the upcoming Two Classes in March. Our baseline state of affairs has policymakers electing to set a goal of “round 5%” once more or in any case “above 4.5%’. 

“Setting of such a goal regardless of doubtless headwinds from tariffs and sanctions would indicate that we’ll see stronger fiscal coverage help in addition to continued financial coverage easing and would doubtless be seen by markets as a sign of confidence.”

ALEX LOO, FX AND MACRO STRATEGIST, TD SECURITIES, SINGAPORE

“We do not reckon the economic system is on a robust footing regardless of the current stimulus bump, and extra fiscal funds are more likely to be deployed on the Funds on March 5 to cushion China’s economic system in opposition to the Trump (administration’s) insurance policies. 

“Focus turns to Trump’s actions on China subsequent week and a 60% tariff on China could immediate the PBOC to chop the 7-day reverse repo subsequent week to spice up exercise by means of financial easing.

“For 2025, we count on China’s GDP development at 4.8%, as an round 5% goal is more likely to be unveiled on the Funds judging by the native authorities GDP targets.”

ANDY JI, ASIAN FX & RATES ANALYST, ITC (NS:ITC) MARKETS, SHANGHAI

“It’s largely a blended bag of financial information as we speak to finish 2024, with some information discrepancy and clearly carrying lacklustre momentum into 2025. Particularly, the full-year tempo of retail gross sales and funding development, at 3.5% and three.2%, respectively, remained considerably under the general headline GDP development of 5%.

“With U.S. commerce coverage change looming, this yr’s development goal will probably be carefully watched once more in March, though too little consideration was paid to the massive miss in 2024 inflation goal of ‘about 3%’, on the again of weak client spending.”

BEN BENNETT, ASIA-PACIFIC INVESTMENT STRATEGIST, LEGAL AND GENERAL INVESTMENT MANAGEMENT, HONG KONG

“The info is an endorsement of the financial shift that authorities have applied. The property sector remains to be beneath strain and authorities do not need to see a return to the outdated days of leverage and large worth rises, so buyers nonetheless must be affected person.”

ZHIWEI ZHANG, CHIEF ECONOMIST, PINPOINT ASSET MANAGEMENT, HONG KONG

“The batch of macro information reveals blended messages. Whereas the GDP development stunned on the upside in This fall, the unemployment charge rose above 5%. I feel the shift of coverage stance final September helped the economic system stabilise in This fall, however it requires massive and chronic coverage stimulus to spice up financial momentum and maintain the restoration. To curb the rise in unemployment charge, fiscal coverage should take a extra proactive stance.”

ZHAOPENG XING, SENIOR CHINA STRATEGIST, ANZ, SHANGHAI

“GDP surprises the market at 5.4% y/y excessive on a low base in addition to coverage stimulus. IP is robust because of exterior frontloading demand, whereas retail gross sales normalise to annual common ranges.

“The robust numbers pave the way in which to about 5% 2025 development goal and provide an opportunity for China to assessment the danger aspect within the economic system. Current liquidity tightness and Vanke saga each counsel macro prudential now carry extra weight than development within the coverage agenda forward of U.S. tariffs. We count on the PBoC to ease instantly in opposition to the doable tariff shock. Close to-term RRR lower earlier than LNY stays doable, however charge lower could delay.”

WOEI CHEN HO, UOB, ECONOMIST, SINGAPORE

“It is primarily pushed by the economic sector in December. A part of this might be to do with front-loading of manufacturing and exports earlier than (U.S. President-elect Donald) Trump comes again to workplace.

“That is probably not sustained going ahead, so the outlook for this yr remains to be going to be weak. Retail gross sales is without doubt one of the most essential issues we ought to be watching now as a result of it’s a reflection of the buyer sentiment, which I feel remains to be relatively smooth at this level.”

CHARU CHANANA, CHIEF INVESTMENT STRATEGIST, SAXO, SINGAPORE

“That is a sigh of aid for Chinese language property, it indicators that the stimulus measures of 2024 are having an influence. China markets nonetheless face structural headwinds in addition to tariffs dangers, and the response to these would be the final driver of long-term returns. The beat is sort of robust on industrial manufacturing – maybe that is due to the export front-loading to the U.S. earlier than the brand new administration’s tariffs kick in. Property nonetheless weak, retail gross sales comes extra from the stimulus influence.

“Optimistic indicators, however we might want to see how stimulus and tariff dangers develop from right here for the momentum to maintain.”

BACKGROUND

* China’s economic system has struggled for traction since a post-pandemic rebound shortly fizzled out, with a protracted property disaster, weak demand and excessive native authorities debt ranges weighing closely on exercise.

* Policymakers have unveiled a blitz of stimulus measures since final September to revive sputtering development, and have pledged to do extra this yr as U.S. President-elect Donald Trump, who has proposed hefty tariffs on Chinese language items, is ready to return to the White Home subsequent week.

* Analysts say the scope and dimension of China’s strikes could rely on how shortly and aggressively Trump implements tariffs or different punitive measures.

* China is anticipated to unveil development targets and stimulus plans through the annual parliament assembly in March.

* The world’s second-largest economic system is more likely to sluggish to 4.5% in 2025 and funky additional to 4.2% in 2026 amid U.S. tariff pressures, a Reuters ballot confirmed.