Chart of the Week: China’s economy is losing momentum

On a quarterly basis, China’s GDP grew by just 0.8% in 2023 Q2; discounting lockdowns, this has been the weakest growth rate since the series began in 2010. Although official GDP data are to be treated with caution, recent Fathom research noted that the degree of misreporting has decreased in recent years.

Looking ahead, while the Chinese economy may achieve a respectable growth print for 2023 as a whole, this will largely be driven by base effects from last year’s lockdowns with momentum appearing fairly weak through the remainder of this year. Indeed, the PBOC’s survey of urban depositors suggests limited appetite for large purchases or investments, a sign that consumer confidence is low and that households might increase their precautionary savings (Chinese households already save around 35% of their disposable income, compared to around 4% for US households.) With the housing market also in the doldrums and the NBS manufacturing PMI suggesting weakness in export orders, there are likely to be increasing calls for policy stimulus over the coming weeks. If that does come, and if it does lead to faster growth, it is worth noting that stronger momentum will have been achieved by a continued reliance on the old investment-led growth model that policymakers claim to be moving away from. So, while stimulus might solve a short-term problem, it will not resolve the long-term one.

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The views expressed in this article are the views of the author, not necessarily those of Refinitiv Lipper or LSEG.