China: Economic growth records slowest increase since Q2 2020 in the fourth quarter
January 16, 2022
GDP growth lost momentum in the fourth quarter, falling to 4.0% year-on-year from 4.9% in the third quarter. Q4's reading marked the slowest growth since Q2 2020. However, the reading was slightly above market expectations of a 3.6% expansion.
The services sector grew 4.6% annually in the fourth quarter, decelerating from the third quarter's 5.4% increase and marking the slowest growth since Q3 2020. This was likely influenced by the government’s tough approach to periodic Covid-19 flare-ups keeping consumer spending muted, and softer services activity related to real estate, due to the steep downturn in the property sector. In addition, industrial activity lost steam, growing 2.5% in Q4 (Q3: +3.6% yoy) amid a contraction in construction output, high producer prices and power shortages at the beginning of the quarter. Agricultural sector growth fell to 6.4% in Q4, marking the worst result since Q4 2020 (Q3: +7.1% yoy).
On a seasonally-adjusted quarter-on-quarter basis, economic growth sped up to 1.6% in Q4, compared to the previous quarter's 0.7% increase.
Looking ahead, GDP growth is expected to pick up slightly in year-on-year terms in Q1 thanks to greater fiscal and monetary policy support. However, activity will be kept constrained nonetheless by the push for clean skies during the February Winter Olympics, which could dampen industrial output. Plus, Omicron is likely to weigh on consumer spending and dampen domestic tourism during the Lunar New Year festivities, and could generate supply disruptions.
On fiscal support, Nathan Chow, senior economist at DBS Bank, commented:
“Spotlight is back on infrastructure investment in 2022, after a lacklustre year amid Beijing’s push to cut wasteful spending. […] Provincial governments have announced/kickstarted infrastructure projects worth RMB3tn YTD, more than double the amount announced during 1–19 January 2021. In December, the Ministry of Finance has approved as much as RMB1.46tn of advance quota for special local government bonds for 2022. Issuance will likely begin earlier than in previous years.”
Author: Oliver Reynolds, Economist