China GDP cools in fourth quarter, 2018 growth hits 28-year low

January 21, 2019 10:48
Chinese policymakers are expected to ramp up support for the economy this year to avert a sharper slowdown. Photo: Reuters

China’s economic growth cooled slightly in the fourth quarter from a year earlier as expected, weighed down by weak investment and faltering consumer confidence as Washington piled on trade pressure, leaving 2018 growth the weakest in 28 years.

Signs of further cooling in China, which has generated nearly a third of global growth in recent years, are stoking worries about risks to the world economy and are weighing on profits for firms ranging from Apple to big carmakers.

Fourth-quarter gross domestic product (GDP) grew at the slowest pace since the global financial crisis, easing to 6.4 percent from 6.5 percent in the third quarter, data from the National Bureau of Statistics showed on Monday. Analysts polled by Reuters had expected 6.4 percent. 

That left full-year growth at 6.6 percent, the slowest rate of expansion China has seen since 1990. Analysts polled by Reuters had expected it to cool to 6.6 percent from a revised 6.8 percent in 2017.

Weakening activity and signs of rising unemployment underline a pressing need for more economic support measures as Beijing wrestles with the United States over trade

Chinese policymakers are expected to ramp up support for the economy this year to avert a sharper slowdown but analysts say activity may not stabilize until summer, adding pressure on Beijing to strike a deal with Washington to end their trade war.

On a quarterly basis, gross domestic product (GDP) rose 1.5 percent in Oct-Dec, compared with 1.6 percent in the previous three months, the National Bureau of Statistics said. Analysts had expected 1.5 percent.  

Meanwhile, China's survey-based jobless rate was 4.9 percent at the end of December, slightly up from 4.8 percent in November, the statistics bureau said. 

The economy created 13.61 million new jobs in 2018. 

Real estate investment rose 9.5 percent last year, slowing from a 9.7 percent gain in the first 11 months of the year, official data showed. 

The property market, a key growth driver, has been cooling in recent months, adding to pressure on the slowing economy.  

Property sales by floor area increased 1.3 percent year-on-year in 2018, easing from a 1.4 percent rise in January-November, data from the National Bureau of Statistics showed.

Chinese policymakers have pledged more support for the economy this year to reduce the risk of massive job losses, but they have ruled out a “flood” of stimulus like that which Beijing has unleashed in the past, which quickly juiced growth rates but left a mountain of debt.  

With stimulus measures expected to take some time to kick in, most analysts believe conditions in China are likely to get worse before they get better, and see a further slowdown to 6.3 percent this year. Some analysts believe real growth levels are already much weaker than official data suggest. 

No panacea  

Even if China and the United States agree on a trade deal in current talks, which is a tall order, analysts said it would be no panacea for the sputtering Chinese economy unless Beijing can galvanize weak investment and consumer demand

Chen Xingdong, chief China economist at BNP Paribas, said investors should not expect the latest round of stimulus to produce similar results as during the 2008-09 global crisis, when Beijing’s huge spending package quickly boosted growth. 

“What China can really do this year is to prevent deflation, prevent a recession and a hard landing in the economy,” Chen said.

Sources have told Reuters that Beijing was planning to lower its growth target to 6-6.5 percent this year from around 6.5 percent in 2018. 

Tepid expansion in industrial output and weaker consumer spending are squeezing companies’ profit margins, discouraging fresh investment and raising the risk of higher job losses. 

Some factories in Guangdong, China’s export hub, have shut earlier than usual ahead of the long Lunar New Year holiday as the tariff war with the US curtails orders. Others are suspending production lines and cutting back on workers’ hours.

If the trade war drags on, some migrant workers may not have jobs to return to. 

Stimulus eyed 

So far, Chinese policymakers have fast-tracked construction projects and cut taxes and some import duties to spur demand. 

To free up more funds for lending, particularly to more vulnerable smaller firms, the central bank has cut the amount of reserves that banks need to set aside as reserves (RRR) five times over the past year, and guided borrowing costs lower. 

Further RRR reductions are expected in coming quarters, but most analysts do not see a cut in benchmark interest rates just yet, as policymakers wait to see if earlier steps begin to stabilize conditions. 

More forceful easing could pressure the yuan and aggravate high debt levels, with money going into less efficient or speculative investments. 

The government may unveil more fiscal stimulus measures during the annual parliament meeting in March, including bigger tax cuts and more spending on infrastructure projects, analysts say.

Some China watchers believe the government could deliver 2 trillion yuan (US$295.13 billion) worth of cuts in taxes and fees this year, and allow local governments to issue another 2 trillion yuan in special bonds largely used to fund key projects.

Still, some analysts do not expect the economy to bottom out convincingly until summer. Reuters

(Updated; last posted at 10:35 a.m.)

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