China likely hit the bottom of a seven-quarter long economic downturn between July and last month, but the slowest three months of growth since the depths of the financial crisis and a cloudy housing market outlook make recovery prospects tepid.
GDP grew 7.4 percent in the third quarter from a year ago, the National Bureau of Statistics (NBS) said, in line with forecasts of economists polled by Reuters who expected the first miss of the official target since Q1 2009’s 6.5 percent.
Industrial production, retail sales and investment data were all slightly ahead of forecasts, however, and quarter-on-quarter GDP growth was strong, suggesting the worst may be over and the world’s No.2 economy will pick up in the final quarter — as a once-a-decade leadership transition gets under way in Beijing.
“Those fearing a hard landing will be able to sleep a little better tonight, but those positioned for a clear recovery might be disappointed,” Alistair Thornton, senior China economist at IHS Global Insight, wrote in a client note. “The picture is one of emerging stabilization, not the return of unbridled optimism.”
Annual economic growth in the first nine months of the year was 7.7 percent, down slightly from a 7.8 percent rate in the first half of the year, but the NBS insisted China would meet or exceed the government’s official target for this year of 7.5 percent.
“We have 7.7 percent growth in September, which laid a solid foundation for achieving the full-year growth target. So we are confident that we can achieve 7.5 percent full-year growth or above,” NBS spokesman Sheng Laiyun (盛來運) told a news conference.
While GDP growth at 7.4 percent would be cause for joy in recession-stalked developed economies, it represents a sharp slowdown for China, where GDP grew 9.2 percent last year and has averaged an annual rate around 10 percent for three decades.
Fixed-asset investment rose 20.5 percent in January-September from a year earlier, ahead of the 20.2 percent consensus forecast, although still down from around 25 percent seen for most of last year.
Consumption also quickened, with retail sales last month expanding by 14.2 percent year-on-year, ahead of the 13.2 percent forecast, which would have been unchanged from August.
Growth in factory output came in at 9.2 percent, slightly ahead of both the 9 percent forecast and August’s 8.9 percent.
Meanwhile the NBS revised five prior quarters of seasonally adjusted GDP data to show the economy bottomed in the first quarter.
“The quarter-on-quarter data has in the past on many occasions been hard to reconcile and hard to replicate,” said Zhang Zhiwei (張智威), chief China economist at Nomura in Hong Kong.
“To me it is a little bit puzzling that Q3 quarter-on-quarter improved so much. I wouldn’t read too much into it,” he said.
Real-estate investment, which affects 40 other business sectors from cement and steel to furniture, was also an area of uncertainty for economists.
It rose 15.4 percent in the first nine months of this year from a year earlier, slowing from an annual increase of 15.6 percent in January-August.
Meanwhile, land sales growth slowed to 4.9 percent last month from a year earlier, down sharply from August’s 20.4 percent, according to Reuters’ calculations based on NBS data, and newly started property construction fell 8.6 percent in the first nine months of the year, accelerating the January-August fall of 6.8 percent.
“There is still a bit of uncertainty around how much housing can hold up. That’s a critical sector, representing 27 percent of [total] investment and that’s probably where the uncertainty is at the moment,” Zhang said, adding that nevertheless signs pointed clearly to a visible rebound in GDP growth in the fourth quarter.
Beijing reduced its full-year growth target to 7.5 percent for this year from the previous 8 percent, and the consensus forecast of economists polled by Reuters is that it will deliver on that goal with an expansion of 7.7 percent.