China GDP (Q4-2019)

James Marple, Senior Economist | 416-982-2557

Date Published: January 17th, 2020

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Chinese economic growth holds steady at 6.0% in the fourth quarter, taking growth to 6.1% in 2019

  • Chinese real gross domestic product (GDP) rose 6.0% year-on-year (y/y) in the fourth quarter of 2019, in line with market expectations. Growth also held steady on a quarter-over-quarter basis at 1.5%, (or roughly 6.1% annualized), ahead of consensus (for 1.4%). Annual growth in 2019 came in at 6.1%, the slowest rate since 1990.
  • At an industry level, primary industry (agriculture and mining) growth accelerated to 3.4% y/y from 2.7% in Q3, while secondary industry (construction and manufacturing) picked up to 5.8% from 5.2%.Tertiary or service industry growth, however, slowed to 6.6% from 7.1% in Q3.
  • Monthly activity indicators for December also came in ahead of consensus estimates, signaling stronger momentum heading into 2020. Industrial production growth firmed to 6.9% y/y versus a 5.9% expectation. Retail sales grew by 8.0% y/y (consensus for 7.9%). Growth in fixed asset investment (excluding rural areas) rose 5.4% (y/y, year-to-date basis), higher than the consensus estimate of 5.2%.

Key Implications

  • Chinese growth came in faster-than-expected in the fourth quarter, but at just 6.1% for 2019 as a whole, it is running at its slowest rate in nearly three decades. This is not surprising given that China's economy is undergoing a multi-faceted rebalancing process which implies a slowdown in economic growth for some years to come.
  • Over the near-term, the stabilization in the fourth quarter is encouraging. Primary industries rebounded after slowing dramatically in the third quarter, while tariff-battered manufacturing also accelerated. The slowdown in service industry output is the one fly in the ointment, but the stabilization in monthly retail sales offers some comfort that consumer spending will remain supportive of growth.  
  • December's monthly indicator data improved from weaker readings in the prior two months of the quarter. The strength in industrial production mirrors the recent firming in sentiment in the manufacturing industry. This suggests that manufacturing activity should continue to stabilize and possibly firm in coming quarters.
  • Overall, our growth forecasts for 2020 remains largely intact. China's economy grew 6.1% last year, down from the 6.7% pace in 2018. This year we anticipate the economy to slow further to 5.9%. Our forecast assumes that policymakers remain vigilant in monitoring economic data, injecting stimulus as needed to ensure that the slowdown in growth remains within an acceptable range. The difficult task of rebalancing the economy is expected to continue this year as policymakers aim to rein in financial sector risks. 
  • The phase one trade deal signed this week should help to alleviate some global and domestic trade-related economic uncertainty, but as we discuss here, meeting China's commitments to add $200 in purchases from the U.S. will be no easy task.