China’s economy slows sharply with GDP growth among worst on record

China’s GDP expanded at its slowest pace since the mid-1970s bar the Covid-hit 2020 year, as the world’s second-largest economy struggled under tight pandemic restrictions that were abruptly ditched late in 2022.

The economy grew 3% last year, well shy of the 5.5% pace the government had targeted at the start of the year and the 8.1% recorded for 2021. The actual rate though, was better than the 2.7% predicted by the World Bank earlier this month.

Analysts will focus on the December quarter growth tally of 2.9%, which exceeded market forecasts of 1.8%, according to Reuters. The economy was roughly static compared with the previous three month, dodging the 0.8% retreat pundits had tipped.

The figures meant China’s GDP rose at the slowest pace in about half a century if the 2.2% expansion in the first Covid year of 2020 is excluded.

For most of the last three years, the Chinese government persisted with rolling lockdowns and mass testing under its Zero-Covid strategy to stop the virus spreading. It abandoned the policy early last month with little warning and without preparations for vaccination campaigns or other medical measures.

Still, the policy shift has been widely interpreted as likely to help spur economic growth in China in 2023 and beyond. The World Bank forecasts GDP growth will quicken to 4.3% this year and 5% the next, expectations that are now being exceeded by many private economists.

Uncertainties include how the soaring death toll – officially 60,000 in the past month or so alone – will affect wider confidence among consumers. Disruptions to supply chains as workers call in sick may dent the recovery and affect economies reliant on Chinese imports.

The health of the giant property market will be another threat to an economic revival with real estate prices continuing to fall in the final months of 2022. New government support packages to encourage buyers are likely in coming months.

China’s growth has a big influence on its neighbours – and nations such as Australia – with its voracious demand for iron ore, gas and other commodities. In the wake of the GDP release, shares in BHP, Rio Tinto and Fortescue – Australia’s three largest iron ore miners – were down 1.3%-2.2% compared with a 0.2% decline for the overall market.

David Bassanese, chief economist for Betashares, said that while official statistics always needed “to be taken with a grain of salt”, the GDP figures were “much better than feared in the final months of 2022”.

Retail spending and industrial production were also stronger than market expectations in the month of December alone, he said.

“This suggests the economy may have already begun to benefit from the partial reduction in Covid restrictions last month and is well placed to rebound even more strongly in the first few months of this year,” Bassanese said.

Shares of commodity producers should benefit from any acceleration of growth, he said, adding: “it also suggests this could be a banner year for the Chinese stock market”.

With Reuters