Chinese economic momentum eases as outlook cools
China reported a solid end to the year on Monday, with better-than-forecast economic growth, but the upbeat note was tempered after the central bank unexpectedly cut a key lending rate amid a weaker outlook.
According to data released by the National Bureau of Statistics, GDP rose by 4% in the last three months of 2021, down on the third quarter’s growth of 4.9% and the lowest rate since the second quarter of 2020.
It was, however, better than forecast, with most analysts looking for growth closer to 3.3%. For the year as a whole, the economy grew by 8.1%, the fastest rate since 2011 and well above Beijing’s target of "over 6%".
Industrial production grew by 4.3% in December year-on-year, up from 3.8% in November and ahead of consensus.
But retail sales unexpectedly fell sharply, to 1.7% from 3.9% a month previously, while fixed asset investment grew 4.4%, down on November’s rise of 6.3%. It was the slowest rate since 2016 following moves by Beijing to curb the once red-hot property sector.
Ning Jizhe, head of the NBS, told a press conference: "At present, the downward pressure on China’s economy is still relatively big, and growth of residents’ employment and income is restricted."
The NBS data coincided with an unexpected decision by the People’s Bank of China’s to cut the borrowing costs of its one-year medium-term loans by 10 bps to 2.85%, the first reduction since April 2020. It also pumped another Y200bn of medium-term cash into the financial system.
Craig Botham, chief China+ economist at Pantheon Macroeconomics, said: "China’s manufacturers have benefitted from the restoration of electricity supply, which was hugely disruptive in the third quarter, and continued resilience in external demand, as reflected by December’s record trade surplus."
But he added that it had been a "terrible" month for consumers. "More widespread and severe Covid outbreaks weighed on the consumer, with the weakest retail sales print since August 2020. Catering services have been hit particularly hard hit, with sales declining 2.7% year-on-year from growth of 2.0% in November. This is the beginning of a weakening trend, rather than its end, given the continued spread of Covid and the arrival of Omicron in multiple provinces.
"The PBoC has been quick to soothe markets, not only injecting liquidity but also reducing its costs. Policymakers are clearly concerned, despite the above-consensus performance in the fourth quarter."
Lee Hardman, currency analyst at MUFG, said: "Overall, we continue to believe that growth in China is likely to slow this year, with risks tilted to the downside, especially in the first half of 2022, as the spread of Omicron is already triggering fresh lockdowns and the real estate slowdown continues.
"Further policy easing does though provide reassurance that Chinese policymakers do not want growth to slow more sharply than below their 5.0% target of this year. It should help to ease downside risks, as well as for commodity and emerging market currencies in 2022."
Victoria Scholar, head of investment at Interactive Investor, said: "Beijing’s efforts to reign in China’s overreliance on leverage, the fallout for its property sector and the country’s zero-Covid tolerance policy are all weighing on its growth outlook.
"Weaker consumption suggests China’s economy is bracing for a further slowdown."