Macroeconomics

China's GDP growth target at risk

16 September 2024 • 3 mins read

A general view shows commercial buildings in Yiwu, east China's Zhejiang province. AFP.

August’s data shows China’s recovery from the pandemic continues to slow, putting this year’s official GDP target of ‘around 5%’ growth at risk.
China’s challenge comes from subdued demand. Consumers remain cautious after the pandemic. Retail sales only rose 2.1% year-on-year (YoY) and property investment contracted 10.2% YoY. The lack of confidence has resulted in low demand for new loans. Credit expanded just 8.1% YoY last month.
China’s supply side is firmer but August’s industrial production growth fell from 5.1% YoY to 4.5% YoY.
Thus, after a strong start to 2024 when Q1 GDP rose 5.3% YoY, Q2 growth eased to 4.7% YoY and is on track to fall to 4.0% YoY in Q3.

August’s data shows China’s recovery from the pandemic continues to slow, putting this year’s official GDP target of ‘around 5%’ growth at risk now.

Source: Bank of Singapore, Bloomberg

China’s challenge comes from subdued demand. Consumers remain cautious after the pandemic. Retail sales only rose 2.1% YoY last month - in contrast, retail sales were expanding by 8.0%YoY before the virus struck in 2020 as the chart above shows - and property investment contracted by 10.2% YoY, as the second chart shows, as China’s real estate markets stayed fragile.

The lack of confidence has resulted in low demand for new loans. Credit growth was weak at just 8.1% YoY last month as the third chart shows.

Source: Bank of Singapore, Bloomberg

China’s supply side is firmer than demand but here too August’s data showed industrial production growth fell from 5.1% YoY to 4.5% YoY despite manufacturing investment expanding 9.1% YoY and exports growing 8.7% YoY.

Source: Bank of Singapore, Bloomberg

Thus, after a strong start to 2024 when Q1 GDP rose 5.3% YoY, 2Q24 growth eased to 4.7% YoY and is on track to fall to only 4.0% YoY in 3Q24.

In 4Q24, we think growth may rebound to 5.0% YoY. Government bond issuance to fund new investment is stepping up as August’s credit data showed and the People’s Bank of China is set to cut interest rates again. However, GDP growth is set to miss this year’s official target now.

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Author:

Mansoor Mohi-uddin

Bank of Singapore