China’s 2022 economic growth plummeted to one of its worst levels in nearly half a century, as the fourth quarter was hit hard by tight Covid restrictions and a housing market slump, putting further pressure on monetary policy makers to disclose more stimulus this year.
Quarterly growth and some of December’s indicators, such as retail sales, beat market expectations, but analysts noted that overall economic momentum across China remained weak and highlighted the challenges Beijing faces after abruptly withdrew its “zero Covid” strategy last month.
Gross domestic product (GDP) grew 2.9% in October-December year-on-year, data from the National Statistics Office (ONE) showed on Tuesday, at a rate lower than the third’s 3.9% quarter. However, the rate beat the 0.4% expansion in the second quarter and market expectations for a 1.8% increase.
Beijing’s sudden easing of strict anti-virus measures has raised expectations of an economic recovery this year, but has also led to a sharp increase in Covid cases that economists say could hamper growth in the near term. The decline in the real estate sector and the weakness in global demand mean that the recovery of growth is largely dependent on consumers.
“China’s 2023 will be eventful; not only will it have to weather the threat of new waves of Covid-19, but the country’s worsening residential real estate market and weak global demand for its exports will be significant drags,” he said in a note. Harry Murphy cruiseeconomist at Moody’s Analytics.
By 2022, GDP grew by 3.0%, well below the official target of “around 5.5%” and abruptly halting 2021’s 8.4% growth. expanding by 2.2% after the initial Covid shock in 2020, it is the worst result since 1976, the last year of the decade-long Cultural Revolution that devastated the economy.
“December’s activity data surprised broadly to the upside but remains weak, particularly in demand-driven segments such as retail spending,” it said in a note. Louise Loueconomist at Oxford Economics.
“So far, the data supports our view that China’s reopening momentum will be anemic initially, with consumer spending a major laggard in the early stages,” Loo said.
A survey of Reuters Growth is expected to rise to 4.9% in 2023 as Chinese leaders face some of the main obstacles to growth: the “zero Covid” strategy and a severe recession in the real estate sector. Most economists expect growth to pick up starting in the second quarter.
A strong rebound in China could mitigate an expected global recession, but could also cause further inflationary headaches around the world just as policymakers are starting to rein in record price hikes.
Reopen the challenges
Asian stocks fell on Chinese data, while the yuan plunged to a one-week low.
On a quarterly basis, GDP stagnated at 0.0% in the fourth quarter, against a growth of 3.9% in July-September, highlighting an underlying weakness in many sectors.
Beijing’s lifting of Covid restrictions has left businesses grappling with rising infections, suggesting an erratic near-term recovery.
“The current ‘exit wave’ of China’s faster-than-expected reopening has taken a heavy toll on economic activity in recent months, due to rising infections, temporary labor shortages and supply chain disruptions Goldman Sachs economists said, noting annual contractions in steel and cement production in December.
Industrial production grew 1.3% in December year-over-year, slowing from 2.2% in November, while retail sales, a key indicator of consumption, contracted 1.8% a month last year, after a 5.9% drop in November.
Official data showed that unemployment fell despite manufacturing and services activity being hit by the rise in Covid infections. The national unemployment rate, based on surveys, fell to 5.5% in December from 5.7% in November.
Top Chinese leaders have vowed to prioritize expanding consumption to support domestic demand and the broader economy this year, as local exporters struggle amid fears of a global recession. The central bank is also expected to ease its monetary policy this year.
China is likely to aim for economic growth of at least 5% in 2023 to keep unemployment at bay, according to regulators.
Headwinds for the real estate sector and the population
China’s real estate sector has been a major drag on growth. Investment in the sector fell 10.0% year on year in 2022, the first decline since records began in 1999, and property sales suffered the biggest drop since 1992, ONE data showed, suggesting that government support measures were having little impact so far.
In recent weeks, the authorities have rolled out a series of measures targeting home buyers and property developers to alleviate the protracted liquidity crunch affecting property developers and delaying the completion of many property projects.
In addition to the challenges facing the economy and government, China’s population declined in 2022 for the first time since 1961, according to data from the National Bureau of Statistics, a historic change that is expected to mark the beginning of a long period of decline in the number of citizens and make India the most populous nation in the world by 2023.
“Population is likely to trend downwards from now on in the coming years. This is very important, with implications for potential growth and domestic demand,” he said. zhiwei zhangchief economist at Pinpoint Asset Management.
“Moving forward, demographics will be a headwind. Economic growth will need to rely more on productivity gains, led by government measures.”
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