China’s economy set to slow sharply in Q4, policymakers face post-pandemic test

It’s Kevin Yao

BEIJING (Reuters) – China’s economy is expected to shrink sharply in the fourth quarter due to tougher COVID measures, knocking down 2022 growth to one of the worst in nearly half a century and raising pressure on policymakers to unveil more stimulus this year.

Tuesday’s data showed gross domestic product (GDP) grew 1.8% in October-December from a year earlier, down from a third-quarter pace of 3.9%, according to a Reuters poll. Such results would have exceeded the second quarter’s increase of 0.4%.

Quarterly, GDP is expected to meet 0.8% in the fourth quarter, compared to the growth of 3.9% in July-September.

“China’s economy appears to have finished the year weak,” economists at JPMorgan said in a research note.

“As the weak December NBS PMI report suggested, domestic activity started to slow down towards the end of the year as the rapid relaxation of control measures led to an increase in COVID-19 cases.”

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Beijing last month suddenly lifted its anti-virus measures that have severely hampered economic activity in 2022, but the relaxation has also led to a sharp rise in COVID cases that economists say could hamper long-term growth.

Factory output is expected to rise by 0.2% in December from last year, down from a 2.2% increase in November, while retail sales, which are the main food sector, are seen to have decreased by 8.6% last month, adding to November’s 5.9% decline.

In the year 2022, the GDP may have grown by 2.8%, significantly missing the target of “around” 5.5% and falling significantly from the growth of 8.4% in 2021. 1976 – the last year of the ten-year Cultural Revolution that disrupted the economy.

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Growth is expected to rise to 4.9% in 2023, as China’s leaders move to tackle the biggest challenges to growth – the “zero-COVID” policy and the sharp fall in the financial sector, according to the survey. Most economists expect growth to pick up from the second quarter.

The government is due to release GDP data, along with indicators for December, on Tuesday at 0200 GMT.

Beijing’s sudden lifting of COVID curbs last month has prompted analysts to change their outlook for the economy and jumps in China’s financial markets, but businesses have battled the growing disease, showing signs of an imminent recovery.

Economists at Morgan Stanley expect an early and strong recovery from the first quarter, raising GDP growth in 2023 to 5.7%.

“We believe the market is still appreciating the progress of the reopening and the possibility that a better recovery can take place despite the storm,” he said in a note.

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China’s leaders have pledged to prioritize food growth to support domestic demand this year, at a time when exporters are struggling due to the global economic crisis.

At a policy meeting in December, top leaders pledged to focus on economic stability in 2023 and increase policy support to achieve the ambitious goals.

China needs to aim for economic growth of 5% in 2023 to avoid unemployment, according to policy.

The central bank is expected to ease policy this year, releasing more cash and reducing spending on businesses, while local governments are expected to provide more loans to support construction projects.

(Reporting by Kevin Yao; Editing by Shri Navaratnam)

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