China: GDP continues to recover in Q3 from Covid-19-induced slump
The economy continued to recover in the third quarter from the economic hardship brought on by the Covid-19 pandemic. GDP expanded 4.9% in annual terms in Q3, following the 3.2% increase recorded in Q2. The print, however, was below the 5.5% rise expected by market analysts. Seasonally-adjusted quarter-on-quarter GDP rose 2.7% in Q3, following the 11.7% expansion in Q2.
Although the National Bureau Statistical (NBS) does not provide a breakdown of GDP by expenditure, additional data suggests that all the main economic components continued to recover in Q3. Retail sales expanded for the first time so far this year in Q3, with consumers gradually returning to the shops as the spread of the coronavirus was largely contained. Investment activity also gained ground in Q3 as a result of the government’s supportive policies and a solid property market. However, despite improving somewhat, manufacturing investment remained weak, mostly reflecting concerns over the ongoing trade disputes between China and the United States. Meanwhile, the external sector continued to benefit from the country’s position as the world’s key provider of medical equipment and technology devices, as well as from production disruptions among some of China’s competitors due to the spread of the pandemic.
Looking forward, China’s quick recovery should remain intact. However, risks are looming on the horizon. Despite its success in containing the virus, the country is not immune to a second wave. Moreover, key trading countries are facing their second or third infection waves, threatening to hamper global demand. Furthermore, a resurgent property market, a concern for China’s policymakers, could force authorities to unveil measures to stem overheating risks. Finally, a key factor to watch will be the outcome of the U.S. presidential elections and its impact on the China–U.S. trade relationship.
Commenting on the outlook for overall growth in the coming months, Nathan Chow, an economist at DBS Bank, notes:
“High-frequency data indicate continued signs of normalisation. Major retailers and catering companies across the country posted combined sales revenues of RMB1.6tn during the Golden Week holiday (1-8 October), with daily revenue up 4.9%. […] Relaxation of social distancing measures alongside an improved labor market and spending at home in lieu of outbound travel should help support the consumption recovery down the road.”
As a result of the solid GDP reading in Q3, Chinese authorities are unlikely to adjust their fiscal and monetary policies in the near term. Against this backdrop, Ting Lu, Lisheng Wang and Jing Wang, economists at Nomura, comment:
“Today’s activity data do not change our view that Beijing will neither add more easing measures nor start tightening in the near term. On fiscal policy, we expect Beijing to carry out what it planned in late May on the scheduled budget and government bond issuance, while on monetary and credit policies, we believe the period of quickly accelerating credit growth is over, but it will likely remain at current levels of around 13.0% in coming months.”