China fourth quarter GDP beats despite slowest annual growth in 24 years

The world's second largest economy reported growth in fourth quarter gross domestic product (GDP) that beat estimates although the reading for 2014 showed the slowest expansion in 24 years.

Specifically, China's economy expanded by 7.3% in the fourth quarter compared to the same period in 2013. That was unchanged from the previous reading and slight above consensus expectations for growth of 7.4%.

Quarter-on-quarter, the Chinese economy slowed from growth of 1.9% to 1.5%. That missed expectations for a lighter slowdown to 1.7%.

According to Mike van Dulken, head of research at Accendo Markets, the upside surprise on the year-on-year reading suggests that the economic slowdown isn’t as severe as feared, reviving optimism in global growth even if it does cool hopes/delay likelihood of further China stimulus being forthcoming”.

Berenberg economist Robert Wood noted that despite 2014 having registered its slowest growth in 24 years, the 7.4% expansion settled in near the official growth target of 7.5%.

“Despite all the hand wringing, China continues to grow rapidly, if slower than the 10%-plus rates seen before 2010,” he pointed out in a note to clients.

“We look for growth to slow to 7.0% this year and 6.7% in 2016 as the ageing population and gradually rising income levels erode achievable growth,” Wood added.

In this light, the experts at Danske Bank expect the Chinese government to cut its GDP growth target to 7.0% for 2015.

“Hence, there is no imminent pressure on People’s Bank of China (PBoC) to ease substantially,” they concluded.

These analysts do expect the PboC to cut the reserve requirement twice by 50 basis points in 2015, but they warned that “there is substantial risk that the PBoC will deliver less easing than currently expected by financial markets”.