GDP grows at softest pace since Q1 2023 in Q3

GDP reading: GDP growth moderated to 4.6% year on year in the third quarter from 4.7% in the second quarter, marking the softest growth since Q1 2023; slowdowns in industry and agriculture more than offset a stronger services sector. That said, the GDP reading was marginally above market expectations. On a seasonally-adjusted quarter-on-quarter basis, economic growth accelerated to 0.9% in Q3, compared to the previous period's 0.5% expansion.

Drivers: The services sector grew 4.8% annually in the third quarter, picking up from the second quarter’s 4.2% increase. Meanwhile, the industrial sector lost steam, growing 4.6% in Q3 (Q2: +5.6% yoy). Agricultural sector growth fell to 3.2% in Q3, marking the worst result since Q1 2020 (Q2: +3.6% yoy). Looking at monthly data, following disappointing figures for multiple indicators in July and August, September data improved: Retail sales, industrial production and fixed investment growth all beat market expectations in the month.

Stimulus to underpin activity: The announcement of significant stimulus measures in recent weeks – including cuts to multiple policy rates and extra fiscal spending—should support the economy in Q4 and into 2025.

Panelist insight: On the impact of stimulus, EIU analysts said: “Although the lift to the economy will not be felt immediately, its near-term impact on confidence and long-run influence on macroeconomic stability are positive. We now forecast that China’s economic growth will reach 4.8% in 2024 (from 4.7% previously), primarily helped by the front loading of Rmb200bn investments in strategic projects recently announced by the National Development and Reform Commission. The economy will then expand by 4.8-4.9% in 2025, as more stimulus kicks in.” Nomura analysts were slightly more downbeat: “We maintain our cautious GDP growth forecast of 4.4% y-o-y for Q4 2024 and 4.0% for 2025, but to reflect the higher-than-expected Q3 GDP print, we raised our 2024 annual GDP growth forecast to 4.7% from 4.6%. Despite seemingly less pressure to meet the official growth target, we believe Beijing will still be compelled to introduce a package of fiscal stimulus measures, which could be capped at 3% of GDP, due to the huge fiscal revenue gap and the downward spiral in the property sector.”

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