China’s Economy Expected to Slow in Q3, But Government Support May Boost Growth
China’s GDP Growth Estimated to Slow to 4.4%
China’s economy is projected to have slowed down in the third quarter due to weakened domestic and international demand. However, increased government support suggests that Beijing may still achieve its full-year growth target. According to a Reuters poll of 60 economists, gross domestic product (GDP) is expected to have grown by 4.4% in July-September, a decrease from the 6.3% growth in the previous quarter.
Challenges Faced by the Second-Largest Economy
The world’s second-largest economy experienced a setback in the second quarter after a brief recovery from the COVID-19 pandemic. Factors such as a property market downturn and substantial debt resulting from decades of infrastructure spending contributed to the slowdown. However, recent economic data indicates some signs of stabilization following modest policy measures. Economists believe that additional support is necessary to sustain growth.
Stimulus Measures and Outlook
Despite declining exports and imports, recent data shows a slower pace of decline. Additionally, bank lending has increased. However, persistent deflationary pressures highlight the challenges policymakers face in reviving economic activity. Analysts at Citi remain optimistic about a cyclical bottom call and anticipate an upbeat economy and potential policy support in the future. The poll predicts a quarterly GDP growth of 1.0% in Q3, compared to 0.8% in April-June.
Revised Growth Forecast
The Reuters poll predicts a 5.0% growth rate for China’s economy this year, aligning with Beijing’s target but lower than the July poll’s forecast of 5.5%. Growth is projected to slow to 4.5% in 2024. Analysts have consistently revised their growth outlook downward this year. In 2020, the economy grew by just 3% due to COVID-19 restrictions, significantly missing the official target.
Policy Measures and Future Prospects
Analysts expect the central bank to maintain banks’ reserve requirement ratio (RRR) and benchmark lending rates steady towards the end of the year. Beijing may increase fiscal stimulus to stabilize activity; however, its impact may not be felt until well into 2024. China is reportedly considering issuing additional sovereign bonds worth at least 1 trillion yuan ($136.82 billion) for infrastructure projects. The central bank faces constraints in easing monetary policy further due to concerns about the yuan’s stability.
Inflation Expectations
Consumer inflation is forecasted to decrease to 0.5% in 2023 from 2.0% in 2022, well below the official target of around 3%. The poll suggests a slight increase to 1.8% in 2024.
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