The Chinese economy grew at slowest pace in a year in the quarter ended September, hurt by power shortage, supply bottlenecks and tighter policies in the property sector.
Gross domestic product (GDP) in the third quarter rose 4.9% year-on-year, official data showed on Monday, below market consensus of a 5.2% growth, and compared with 7.9% expansion in the second quarter.
“Since entering the third quarter, domestic and overseas risks and challenges have increased,” Fu Linghui, spokesperson for the National Bureau of Statistics (NBS), said in press conference following the data release, as reported by CNBC.
Industrial production slows further
Industrial production eased further in September, growing just 3.1% year-on-year against 4.5% expectations, weighed by domestic power crisis, global shortage of semiconductors, and port shutdowns due to Covid cases.
The industrial activity in September marks the lowest growth within 18 months. The data released today followed last week’s producer price inflation which jumped by record-high 10.7% in September due to rising commodity prices.
ANZ economists viewed that surging factory gate inflation and slowing industrial output increased the risk for stagflation in China.
“Before the economy enters broad-based stagflation, the authorities will need to address the supply-side constraints among key commodities,” they said.
Retail sales data flatters
The NBS also released retail sales data for September, showing a 4.4% annual increase, better than market consensus of a 3.3% rise and compared with 2.5% in August.
Yet, some data digging showed that the increase was driven by a 20.1% surge in jewellery and gold spending, said Iris Pang, ING’s chief economist for Greater China.
“This could come from investment demand for gold when investors are not interested to buy properties. So this is not a pure consumption demand, it is an investment demand…Spending on clothing and accessories were in contraction at 4.8% year-on-year, which tells us that retail sales were in fact weak,” she said in a note.
Pang added that China’s strict lockdown policy will continue being a drag on retail sales as consumers remain wary of cross-province travels as they might unable to return if the place they visited had Covid infections.
Further slowdown in fourth quarter
The Chinese economy will likely slow further in the October-December period, economists viewed, due to deleveraging policies in the property sector and supply chain disruptions.
“Nearer September, real estate development activities were slow because of the deleveraging reform in the sector which makes it more difficult for developers to get funding to continue their projects,” Pang said.
Freight rates and chip shortages, meanwhile, will become a drag for equipment, automobiles and telecommunication devices industries, she added.
Reserve requirement ratio cut predicted
ING lowers its forecast on China’s fourth quarter GDP to 4.3% from 4.5%, while ANZ estimated a 3.6% growth.
ANZ expects the People’s Bank of China to keep interest rate steady to contain systemic financial risks, while ING views the monetary authority will deliver 50 basis points cut in reserve requirement ratio for commercial lenders to boost liquidity.