China’s economy grew at the second slowest pace since the 1970s last year as Covid restrictions hammered activity, though better-than-forecast fourth quarter and December data add to optimism it may be primed for a recovery.
(Bloomberg) — China’s economy grew at the second slowest pace since the 1970s last year as Covid restrictions hammered activity, though better-than-forecast fourth quarter and December data add to optimism it may be primed for a recovery.
Gross domestic product in the world’s second-largest economy grew 3% in 2022, the National Bureau of Statistics said Tuesday, higher than the median estimate of 2.7% in a Bloomberg survey of economists. For the final quarter, the economy expanded 2.9% from a year earlier, topping economists’ forecasts for 1.6% growth.
The CSI 300 gauge of onshore stocks edged lower after initially erasing declines following the data release. Hong Kong’s Hang Seng Index dropped as much as 1.1%. Both the onshore and offshore yuan extended drops to 0.4%.
The government had initially set a growth target of “around 5.5%,” although Covid lockdowns and the sudden abandoning of restrictions in December put that GDP goal out of reach. Activity was weak in December, though not as bad as economists had feared.
- Industrial output rose 1.3% from a year ago, higher than a forecast of 0.1%
- Retail sales contracted 1.8% versus a predicted 9% decline
- Fixed-asset investment gained 5.1% last year, largely in line with forecasts
- The urban jobless rate fell to 5.5% last month from 5.7% in November
“This is a positive GDP report, and lays a solid ground for the economy to recover in the coming year,” said Zhou Hao, chief economist at Guotai Junan International Holdings. “We believe both consumption and investment will see further improvement in the next few quarters, as the reopening has been gaining momentum and the government will add more impetus on infrastructure investment.”
China stuck to its Covid Zero policy for most of 2022, scarring output across the nation — from financial center Shanghai and technology hub Shenzhen to iPhone city Zhengzhou and car manufacturing base Jilin. The policy’s rapid dismantling in December caused more economic strain as infections surged, but activity has rebounded in recent weeks where cases have peaked, such as in the capital of Beijing.
What Bloomberg’s Economists Say
China’s fourth-quarter GDP should be viewed with both concern and a degree of relief. The overshoot relative to expectations will assuage worries about a crash. The data were still very weak — there’s no hiding the fact that the economy took a very heavy blow from the messy exit from Covid Zero and outbreaks that swept across the country in December. Even so, high-frequency indicators suggest that the economy may have have bottomed. We see a solid rebound taking hold in 2Q23.
Chang Shu and Eric Zhu
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Economists are now betting on a stronger recovery in coming months as consumer spending picks up and the housing slump eases. The median estimate in a Bloomberg survey of economists is for growth to accelerate to 4.8% this year, although some major banks like Morgan Stanley, Bank of America and Citigroup Inc. expect growth to be closer to 5.5% or higher.
The NBS said the recovery’s foundation is “not solid yet,” highlighting an international environment that remains “complex and severe” and triple pressures of contracting domestic demand, supply shocks and weakening expectations.
China also faces challenges that will weigh on longer-term growth. The population shrank in 2022 for the first time in six decades, the NBS said Tuesday, with repercussions for the labor market, demand for housing and the country’s pension system.
“China cannot rely on the demographic dividend as a structural driver for economic growth,” said Zhiwei Zhang, president and chief economist at Pinpoint Asset Management. “Going forward, demographics will be a headwind. Economic growth will have to depend more on productivity growth.”
Policy makers have signaled they’re prioritizing economic growth in 2023, with more fiscal and monetary stimulus on the cards. Key to their strategy is to boost consumption and investment in the country in order to drive growth. The government also recently took steps to ease its regulatory overhaul of the technology industry and reverse some of the restrictions on the real estate market.
China’s provinces are almost all targeting economic growth of 5% or more in 2023. Officials are debating a national economic growth target of around 5%, Bloomberg News reported last month.
The better-than-expected retail sales last month was partly due to strong growth in car purchases as well as an almost 40% jump in medicines. Restaurant sales plunged further though, contracting 14.1% in December from a year ago, after declining 8.4% in November.
“The data shows stronger growth momentum expected in 2023 with the cost of damage from an earlier-than-expected Covid exit wave” in the fourth quarter of last year, said Bruce Pang, chief economist and head of research for Greater China at Jones Lang LaSalle Inc.
–With assistance from James Mayger, Malcolm Scott, Fran Wang, Ishika Mookerjee and Chester Yung.
(Updates with comments from economists, drop in population.)
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