China: Q4 GDP surprised to the upside – UOB

UOB Group’s Economist Ho Woei Chen reviews the latest GDP releases in the Chinese economy.

Key Takeaways

“China’s economy slowed in 4Q22 amid a surge in domestic Covid infections and deaths but the outcome turned out to be better-than-expected. The GDP rose by 2.9% y/y (Bloomberg est: 1.6%, UOB est: 2.2%, 3Q22: 3.9%) in 4Q22 with the full-year 2022 growth at 3.0%.”

“The economy also avoided a quarter-on-quarter contraction as GDP was flat (Bloomberg est: -1.1%, 3Q22: +3.9%) compared to 3Q22, on a seasonally adjusted basis. This compares well against the two-month lockdown in Shanghai which resulted in -2.4% q/q for the GDP in 2Q22.”

“Better-than-expected data across most economic indicators in Dec suggests that the recovery momentum may turn out to be stronger in 1Q23. Industrial production (IP), retail sales, fixed asset investment (FAI) were all above expectation in Dec and the surveyed jobless rate unexpectedly improved.”

“Our 5.2% GDP growth forecast for 2023 has factored in a more moderate recovery compared to the 2020-21 period when China’s growth had averaged 5.3%, mainly due to the absence of support from a strong global demand. We envisage a greater contribution from final consumption expenditure of more than 4.0ppt to the headline GDP growth rate while gross capital formation and net exports are likely to contribute just around 1.0ppt in 2023.”

“We expect the fiscal and monetary support to stay in place until the economy has stabilised. As the mild inflation backdrop is likely to persist in 1Q23, there will be opportunities for the People’s Bank of China (PBOC) to lower its interest rate or banks’ reserve requirement ratio (RRR).”