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China’s Q4 growth slows to 2.9% y/y, beats expectations

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China’s economy hit a bump in the fourth quarter, growing by 2.9% year-on-year, National Bureau of Statistics data showed on Tuesday, beating expectations but still underlining the toll exacted by a stringent “zero-COVID” policy.

Gross domestic product (GDP) had been forecast to expand 1.8% from a year earlier, according to a Reuters poll of analysts, slowing from 3.9% in the third quarter.

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Growth for 2022 was at 3.0%, the data showed, far below the official target of around 5.5%. Excluding the 2.2% expansion after COVID first hit in 2020, this is the worst showing in nearly half a century. ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

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KEY POINTS

* Q4 GDP +2.9% y/y (f’cast +1.8%, Q3 +3.9%)

* Q4 GDP 0.0% q/q s/adj (f’cast -0.8%, Q3 +3.9%)

* Full-year 2022 +3.0% (f’cast 2.8%, 2021 8.4%)

* December industrial output +1.3% y/y (f’cast +0.2%, November +2.2%)

* Dec retail sales -1.8% y/y (f’cast -8.6%, November -5.9%)

* Jan-Dec fixed asset investment +5.1% y/y (f’cast +5.0%, Jan-Nov +5.3%)

* Jan-Dec property investment -10.0% y/y (Jan-Nov -9.8%)

* China Dec survey-based jobless rate for 16-24 years old at 16.7%

* China’s population in 2022 shrinks for the first time since 1961

MARKET REACTION:

There was muted reaction to the data in Chinese stock markets and the yuan currency. Both have performed strongly this year on hopes for a solid post-COVID recovery.

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COMMENTARY: KEN CHEUNG, CHIEF ASIAN FX STRATEGIST, MIZUHO BANK, HONG KONG

“China data came in less worse than expected across the board, reflecting less severe disruptions from the lockdown and massive infection.”

“The less worse-than-expected data did little to boost the RMB exchange rate as attention has shifted to 2023 recovery, especially the data after the Chinese New Year break.”

“Investors may also hold skepticism on the data for December, given the distortion caused by the COVID outbreak and the larger statistical error in data collection in the period.”

“We believe that the data impact will prove to be short-lived and the RMB will be more driven by the USD movement in the near term.” ZHOU HAO, CHIEF ECONOMIST AT GUOTAI JUNAN INTERNATIONAL, HONG KONG “China’s GDP report came in much better than expected, with Q4 GDP gaining 2.9% y/y, much better than market consensus at 1.6%. For the whole year, the economy expanded by 3%, largely in line with our expectations.”

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“In general, this is a positive GDP report, and lays a solid ground for the economy to recover in the coming year. We believe both consumption and investment will see further improvement in the next few quarters, as the reopening has been gaining momentum and the government will add more impetus on infrastructure investment.”

“We see the government will set the growth target at around 5% in the National People’s Congress in March, which looks pretty attainable for now.”

BACKGROUND:

* Analysts polled by Reuters had expected China’s economic growth to slow sharply to 3% in 2022, weighed down by widespread COVID lockdowns and infections, but it is likely to rebound to 4.9% in 2023 after strict anti-virus curbs were lifted in December.

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* Chinese leaders have pledged to spur the world’s second-largest economy this year while addressing some key drags on growth, notably a severe property sector downturn. Exports are also expected to remain weak as the global economy teeters on the brink of recession, highlighting the importance of boosting domestic demand to drive a recovery in 2023.

* Residents of China are increasingly on the move after the sudden reversal last month of heavy COVID-19 curbs, despite a surge in infections, pointing to a gradual recovery in consumption and economic activity this year. Still, some indicators show activity has not fully recovered to levels of just a few months ago, let alone pre-pandemic levels. (Reporting by Asian bureaus; Compiled & edited Subhranshu Sahu)

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