China: Economy continues to fire on all cylinders in Q4
January 18, 2018
China’s economy continues to defy concerns about a potential slowdown due to resilient private consumption and strong export growth. GDP rose 6.8% annually in Q4, matching Q3’s result and coming in a notch above the 6.7% increase that market analysts had expected. As a result, the economy grew 6.9% in the full year 2017, up from the 6.7% increase in 2016 and above the 6.5% target set for 2017.
Although the National Bureau of Statistics (NBS) does not provide a breakdown of GDP by expenditure, additional data suggests that strong external demand supported economic activity in Q4, while investment and private consumption likely lost some steam in the final quarter of 2017. Nominal merchandise exports of goods expanded at the fastest pace in over three years in Q4, while import growth moderated slightly in the same period. Strong global demand is propelling the external sector, which, in turn, positively reverberates in manufacturing industries. Stricter environmental regulations and the government’s intention to reduce overcapacity in certain industries continue to put a damper on investment growth. Despite remaining strong, nominal retail sales moderated slightly in Q4. Official figures for unemployment show that the unemployment rate steadily decreased in the first nine months of 2017, suggesting that the labor market remains tight and that it could lead to further wage gains.
From a supply perspective, growth was mainly driven by services and the primary sector. Industrial activities, however, appear to have slowed in Q4.
Sequential data shows that GDP in Q4 adjusted for seasonal factors increased 1.6%, down from the 1.8% expansion in Q3.
The economy continues is slow-but-steady transition from growth fueled by investment and manufacturing to an economic model based on consumption and services. With GDP by expenditure data still outstanding, economic indicators suggest that household consumption and the services sector led 2017’s economic performance. This year, economic growth will moderate on the back of a cooling property sector, slowing external demand and the government’s policies aimed at curbing pollution. The main downside risks to growth include a deterioration if the relationship between China and the United States, which could lead to a trade war, and a disordered financial deleveraging in the country.
China GDP Forecast
FocusEconomics Consensus Forecast panelists expect GDP to expand 6.4% in 2018, which is up 0.1 percentage points from last month’s estimate. In 2019, the panel foresees lower economic growth of 6.1%.