China’s Economy Likely to Slow in Q3 Amid Weak Demand and Increased Stimulus Efforts
China’s economy is expected to show signs of slowing down in the third quarter. The data, set to be released on Wednesday, reflects the ongoing impact of weak demand. However, there is hope that increased stimulus measures will improve the chances of Beijing achieving its full-year growth target.
Weakened Recovery and Lingering Challenges
The world’s second-largest economy experienced a setback in the second quarter following a brief post-COVID recovery. This was primarily driven by a property downturn and the burden of significant debt resulting from a long-standing infrastructure spending spree.
The government has responded to these challenges by introducing a series of measures to bolster the economy. These include increased public works spending, interest rate cuts, easing property regulations, and efforts to support the private sector.
GDP Growth Expectations
Economists surveyed by Reuters predict that China’s gross domestic product (GDP) likely grew by 4.4% in the third quarter compared to the same period last year. While this represents a slowdown from the 6.3% growth rate in the second quarter, it is still a significant expansion considering the prevailing circumstances.
The official GDP data is scheduled to be released on Wednesday at 0200 GMT. In addition to this, separate data on September activity is expected to show a pickup in retail sales growth, although factory output may slow down.
Stabilizing Economy and Future Prospects
Recent economic data suggests some signs of stabilization due to the implementation of modest support measures. However, economists believe that more action is necessary to ensure sustained economic activity.
It is forecasted that growth will pick up to 4.9% in the fourth quarter, demonstrating cautious optimism about the future trajectory of the Chinese economy.
Challenges Ahead
Although China’s exports and imports have been declining at a slower pace and bank lending has increased, there are persistent deflationary pressures that pose challenges to policymakers seeking to revive economic activity.
Economists remain concerned about the property sector, employment, household income, and weak confidence among some private firms. It is anticipated that Beijing will closely monitor the impact of stimulus measures implemented in recent months.
Ting Lu, Chief China Economist at Nomura, stated, “We expect a triple dip towards year-end or early 2024, and Beijing may have to step up its efforts to stabilize growth again at that time.”
Quarterly Growth and Future Outlook
On a quarterly basis, GDP is projected to grow by 1.0% in the third quarter, a slight improvement from 0.8% growth in April-June.
For the full year, economic growth is expected to reach 5.0% according to the poll, aligning with Beijing’s annual target. However, growth is anticipated to slow down to 4.5% in 2024.
Monetary Policy and Fiscal Stimulus
Reuters’ poll of economists predicts that the central bank will maintain the reserve requirement ratio (RRR) and benchmark lending rates for the rest of the year.
Beijing may also increase fiscal stimulus to further stabilize economic activity. However, analysts suggest that the benefits of these measures may not be fully realized until well into 2024.
Challenges in Monetary Policy
The central bank faces constraints on how much it can ease monetary policy due to concerns about putting additional pressure on the yuan, which has already experienced a 5.7% decline this year.
In September, the central bank reduced the RRR for the second time this year to inject liquidity and support the economic recovery.
As China navigates the challenges posed by a weakening economy, policymakers continue to explore strategies to sustain growth and address the underlying issues affecting various sectors. The coming months will be crucial in determining the success of these efforts and the overall trajectory of China’s economy.
