China: Growth strengthens in Q4
January 20, 2017
Despite the implementation of measures to cool China’s booming property market, the economy showed its strength again in Q4 and expanded at the fastest pace in one year. GDP grew 6.8% annually in Q4, which was above the 6.7% expansion observed in the nine months up to September and the 6.7% that FocusEconomics analysts had expected. In the full year 2016, the economy expanded 6.7%, which was slightly below the 6.9% rise in 2015 and well within the government’s 2016 growth target of between 6.5% and 7.0%.
Although the National Bureau of Statistics (NBS) does not provide a breakdown of GDP by expenditure, additional data suggest that improving dynamics in private consumption were behind Q4’s acceleration as retail sales accelerated to a 10.6% increase in that period (Q3: +10.5% year-on-year). Investment growth decelerated slightly in Q4 as a result of poorer dynamics among state-owned and state-holding units on the back of waning policy support. Despite improving in Q4, private investment remained weak in the same period and could not offset the slowdown among government-related entities.
On the external side of the economy, weak global demand continued to drag on nominal merchandise exports despite the weakening of the yuan. Resilient domestic demand and the stabilization in commodities prices prompted nominal merchandise imports to expand in Q4 for the first time in over two years.
Sequential data show that GDP in Q4 adjusted for seasonal factors increased 1.7%, slightly down from the 1.8% expansion registered in Q2. Moreover, overall nominal GDP grew 9.4% annually in Q4, which was above the 7.8% increase in Q3 mainly as a result of higher industrial prices.
Chinese authorities will likely strive to ensure economic stability this year faced with a choppy global economic outlook, as highlighted at the December Central Economic Work Conference. Uncertainty about U.S. President Donald Trump’s economic policies, in particular about whether he will impose a tariff on Chinese goods, and doubts about the economic recovery in Japan and the EU are casting a long shadow on China’s all-important external sector. On the domestic side, authorities will have to strike a fragile balance between shoring up growth and implementing economic reforms. Moreover, the tightening measures in the real estate market will likely drag on growth throughout 2017. Overall, the government is expected to rely on fiscal stimulus to support the economy. While the Central Bank will maintain an accommodative monetary policy, it will not ease further as that could risk capital outflows and heighten currency volatility.