China’s GDP expanded by 4.6% in Q3 with momentum improving slightly in September

October 30, 2024

In line with our expectations, China’s GDP decelerated to 4.6% in Q3 2024, from 4.7% in Q2. This was largely driven by weakness in aggregate demand because of the property downturn and restrained private consumption, a slowing pace of infrastructure investment, and a relatively high base of comparison in Q3 2023. The stimulus measures released in September and October, and the expected fiscal stimulus that will be announced in early November, will support growth, but a large part of it will only be felt next year. Also, what is really needed for a sustainable growth rebound are significant structural reforms, which will take time to take effect; as such, we expect the market to continue being characterized by weak spending and intense price-based competition.

Trusted Insights for What’s Ahead™

• Status of China’s Economy: Growth momentum improved slightly in September
  September saw an acceleration in production and consumption data, driven by fiscal stimulus and supportive measures like the consumer trade-in and equipment upgrading programs. The government decided to intensify fiscal and monetary support in late September, but given persistent weakness in domestic demand and policy lags, we maintain our GDP forecast for 2024 at 4.8%.
• Investment Trends: Manufacturing investment remains robust, infrastructure moderates and property contracts
  Fixed asset investment (FAI) grew 3.4% y-o-y in Jan-Sep, unchanged from the Jan-Aug period, mainly driven by robust investment into manufacturing (9.2% in Jan-Sep). In comparison, property investment continued to contract while infrastructure investment moderated further. Infrastructure and manufacturing investment are expected to pick up speed in the next months, thanks to the acceleration of government bond issuance in recent months.
• Consumption Trends: Persistent confidence weakness means a modest outlook for consumption
  Retail sales growth accelerated to 3.2% y-o-y in September, up from 2.1% in August. This was driven by increased sales of durable goods, especially cars and white goods, thanks to the ongoing consumer trade-in program. Despite the improvement, the outlook for private consumption remains modest against the backdrop of persistent consumer confidence weakness, a slower pace in income growth, and a weak labor market. In fact, household spending slowed further in Q3, likely reflecting weak consumer confidence. We believe Chinese consumers will remain risk-averse and price-sensitive as long as the underlying structural factors dragging down confidence levels are not addressed. While hospitality and travel-related industries will benefit from sporadic releases of pent-up demand, MNCs overall should be prepared for continued weakness in consumption.
• Trade Trends: Chinese export growth slowed amidst weakening external demand
  Export growth slowed to 2.4% y-o-y in September from 8.7% in August, driven by weakening external demand and temporary factors including typhoons in port cities and global shipping congestion. Looking ahead, softening external demand in major economies and escalating trade tensions will weigh on China’s export outlook through 2024.