City skyline in China

China GDP Q3 2023

China: GDP growth beats market expectations in Q3

GDP growth slowed markedly to 4.9% year on year in the third quarter from 6.3% in the second quarter. Q3’s reading was depressed by a less favorable base effect compared to Q2—as Q2 2022 coincided with strict lockdowns in parts of China—but was above market expectations. On a seasonally-adjusted quarter-on-quarter basis, economic growth gained pace, accelerating to 1.3% in Q3 from the previous period’s 0.5% expansion and also beating market expectations. The better-than-expected GDP readings suggest that the policy easing in recent months is having a stabilizing effect on the economy, and means that the government’s target of 5.0% growth for 2023 as a whole is within reach.

The services sector grew 5.2% annually in the third quarter, decelerating from the second quarter’s 7.4% increase and marking the slowest growth since Q4 2022. In addition, the industrial sector lost steam, growing 4.6% in Q3 (Q2: +5.2% yoy). Agricultural sector growth accelerated to 4.2% in Q3, from the 3.7% expansion in the previous quarter.

Looking at the latest activity data for September, growth in retail sales and industrial production exceeded market expectations with expansion of 5.5% and 4.5% respectively, suggesting a strong end to the quarter. Moreover, property sector indicators such as new home starts and sales improved sequentially in September. However, these indicators were still down year on year, while home prices continued to contract in the month, suggesting the real estate sector remains fragile.

Our panelists expect similar year-on-year and quarter-on-quarter GDP growth in Q4 relative to Q3. Recent interest rate cuts, the loosening of housing market restrictions and an expected stabilization in exports will provide support. However, shaky business and consumer sentiment, trade tensions with the West and a large debt overhand in the property sector will continue to hold back momentum.

On the near-term economic outlook, Goldman Sachs analysts said:

“Taking into consideration the likely lagging effect of recent policy easing and solid high-frequency data for the first half of October, we slightly raise our sequential growth forecast for Q4 […]. These forecasts embed our assumption that policy easing on monetary, fiscal and property fronts will continue in coming months given the ongoing property headwinds and still-fragile confidence.”

Nomura analysts were more downbeat:

“We believe it is still too early to call the bottom, as pent-up demand for travel and gatherings may fade notably after the Golden Week holiday, the property sector has yet to truly recover, highly restrictive interest rates in developed markets may finally weigh on the global economy, and market confidence in China’s economy remains depressed. We expect a slowdown towards year-end or in early 2024, and Beijing may have to step up its efforts to stabilize growth again at that time.”

On the housing market, Desjardins’ Marc-Antoine Dumont said:

“The housing market remains bogged down. New home sales continue to decline and have now dropped 44% from their April 2021 peak. Despite numerous government measures, consumer and business confidence in the sector is struggling to recover. The stakes are high for China since housing represents 25% of economic activity when direct and indirect effects are taken into account. It’ll take another few quarters before we see a meaningful housing market rebound, so the sector is unlikely to contribute much to real GDP growth.”

Free sample report

Access essential information in the shortest time possible. FocusEconomics provide hundreds of consensus forecast reports from the most reputable economic research authorities in the world.
Close Left Media Arrows Left Media Circles Right Media Arrows Right Media Circles Arrow Quote Wave Address Email Telephone Man in front of screen with line chart Document with bar chart and magnifying glass Application window with bar chart Target with arrow Line Chart Stopwatch Globe with arrows Document with bar chart in front of screen Bar chart with magnifying glass and dollar sign Lightbulb Document with bookmark Laptop with download icon Calendar Icon Nav Menu Arrow Arrow Right Long Icon Arrow Right Icon Chevron Right Icon Chevron Left Icon Briefcase Icon Linkedin In Icon Full Linkedin Icon Filter Facebook Linkedin Twitter Pinterest