China’s Q3 GDP growth shows economic recovery gaining traction

China’s economy grew at a faster rate than expected in the third quarter of 2023, indicating that recent stimulus measures are helping to bolster a tentative recovery. This comes as rapidly weakening growth in the world’s second-largest economy prompted authorities to step up their support steps. However, risks such as a property crisis and other headwinds continue to pose challenges to the outlook.

According to data released by the National Bureau of Statistics, China’s GDP grew 4.9% in July-September compared to the same period the previous year. This beat analysts’ expectations for a 4.4% increase but was slower than the 6.3% expansion in the second quarter. On a quarter-by-quarter basis, GDP grew 1.3% in the third quarter, accelerating from a revised 0.5% in the second quarter and above the forecast for growth of 1.0%.

The better-than-expected data suggests that China is on track to achieve its full-year growth target of around 5.0% in 2023. As a result, international banks have upgraded their growth outlook for the country, with Nomura raising its forecast to 5.1% and JPMorgan lifting its forecast to 5.2%.

September’s industrial output and retail sales also beat expectations. Industrial output grew 4.5% from a year earlier, in line with August’s pace, while retail sales increased 5.5% last month, accelerating from a 4.6% increase in August. However, challenges remain in the property sector, which accounts for nearly a quarter of China’s economic output. Property investment fell by 9.1% in the first nine months of 2023, and fixed-asset investment by private firms was down 0.6% year-on-year, highlighting weak private sector confidence.

To support growth in the industry, policymakers have implemented measures such as rate cuts and easing homebuying restrictions. However, these efforts have failed to boost confidence, indicating the depth of the problems in the property sector.

Looking ahead, the focus will shift to the growth outlook for next year and the growth target the government will set. Despite the recent positive data, risks such as the property crisis and Sino-U.S. tensions over trade and technology remain. In response, policymakers may need to implement further stimulus measures to ensure sustained and robust economic growth.