Chinese economy grows below expectations in Q3, likely to continue to recover

The Chinese economy is expected to continue its recovery. The industrial sector is fully back on track, owing to infrastructure projects. Consumption is expected to rebound but income uncertainty might keep it below normal for some time, stated Nordea Bank in a research report.

In the third quarter, China’s economy has extended its recovery. The GDP growth for July-September came in at 4.9 percent year-on-year, slightly below consensus expectations of 5.2 percent. This affirms the view that the output losses at least so far have been smaller in China than in the Western nations where the annual growth rates continue to be negative.

The quarter-on-quarter growth was 2.7 percent, which was much lower than 11.5 percent in the second quarter but still much higher than the usual quarterly growth of about 1.5 percent. This implies that the Chinese economy is still in recovery mood.

The rebound is still asymmetric throughout the sectors. The industrial sector is back on track while consumption still has some way to go. The positive development is that private consumption has recorded a considerable rebound compared to the first half of this year. A return of the consumers in China is important to underpin the long-term transition to a consumption-driven economy.

The industrial outperformance is mainly because of a boom in the manufacturing and construction sectors, owing to infrastructure investments and increasing property prices. Exports have not been impacted from a prolonged slump as several feared, given additional support to the industrial sector.

Meanwhile, low new infection rates domestically, rising property prices and stock prices have lifted consumer sentiment. It is clear that during the Golden Week holidays, national retail sales and catering growth by 4.9 percent compared to the same period in 2019.

“But elevated income uncertainty, and to some extent the fear for a rise of infections, will likely keep consumption at sub-par levels in the coming quarters”, said Nordea Bank.