China: Economic growth continues to decelerate in Q4
January 21, 2019
In the final quarter of 2018, the Chinese economy expanded at the slowest pace since 2009 on the back of spillovers from financial deleveraging and downbeat economic sentiment due to the trade spat with the United States. Nevertheless, data for December suggests that government efforts to cope with mounting headwinds have started to bear fruit. GDP expanded 6.4% in annual terms in Q4, down from the 6.5% expansion recorded in Q3 and the softest print since Q1 2009. The figure matched market analysts’ expectations. Looking at the year as a whole, the economy expanded 6.6% in 2018 (2017: +6.8%), the weakest print since 1990. In seasonally-adjusted quarter-on-quarter terms, GDP growth inched down to 1.5% from a 1.6% expansion in Q3.
Although the National Bureau of Statistics (NBS) does not provide a breakdown of GDP by expenditure, additional data suggests that private consumption led the slowdown. This is demonstrated by growth in retail sales, which moderated significantly in Q4 compared to the previous quarter. Households are increasingly worried about their economic futures as trade tensions with the United States escalate and domestic growth moderates. Conversely, investment activities may have recovered somewhat in the final quarter of 2018 as signaled by stronger growth in fixed-asset investment on the back of increased policy stimulus. Meanwhile, external sector dynamics deteriorated markedly with both nominal export and import growth of goods decelerating to a two-year low in Q4 amid the trade war with the U.S.
Looking at the breakdown by sector, the secondary sector, which includes manufacturing and construction, recovered slightly in Q4 after recording its worst performance since Q1 2009 in the previous quarter. Meanwhile, growth in the primary and tertiary sectors both saw lower readings compared to Q3.
The print for the final quarter of 2018 suggests that government initiatives to shore up economic growth are slowly gaining traction. This, coupled with solid financial and fiscal buffers, should cushion the economy against any sharp slowdown. Despite avoiding a hard landing, growth will continue to moderate this year and risks clearly remain skewed to the downside. A full-blown trade war with the United States cannot be ruled out for now, while bold policy easing could jeopardize previous efforts to reduce debt and exacerbate macroeconomic imbalances.