China’s economic growth cooled to 7.3% between July and September from a year earlier, the weakest expansion since the global financial crisis and reinforcing expectations that Beijing will need to roll out more stimulus to avert a sharper slowdown.
With a faltering property market increasingly dragging on manufacturing and investment, the reading was the slowest for the world’s second-largest economy since early 2009, when the growth rate tumbled to 6.6%.
Economists polled by Reuters had expected third-quarter growth to cool to 7.2% from 7.5% in the second quarter, adding to worries about flagging global growth which have sent financial markets tumbling in recent weeks.
On a quarter-on-quarter basis, growth eased to 1.9% versus expectations of 1.8% and down from 2% in the second quarter.
Other data released alongside the gross domestic product (GDP) report on Tuesday showed factory output rose 8% in September from a year earlier, beating expectations for a 7.5% increase and up from August’s six-year low of 6.9%.
Fixed asset investment, a key driver of the Chinese economy, was weaker than expected. It climbed 16.1% in the first nine months compared with the same period a year earlier, below forecasts for a 16.3% rise and cooling from 16.5% in the first eight months of the year.
Retail sales rose 11.6% in September from a year earlier, below analysts’ predictions of 11.8% and down from the previous month’s 11.9%.
A raft of lackluster and at times alarming economic data in recent months presaged slowing third-quarter growth in China, with the growing drag from the property market blunting the impact of stimulus measures which were rolled out earlier in the year.
Beijing is expected to announce fresh support measures in response to the weak economic picture as China is on track to miss the official 7.5% growth target for the year, analysts said ahead of the data release. However, Premier Li Keqiang has said repeatedly that the government would tolerate growth slightly lower than the target as long as the jobs market holds up.
Most economists do not expect more aggressive policy action such as interest rate cuts unless conditions sharply deteriorate.
Job market is key
The data added to expectations that growth will come in below the official 2014 target of 7.5 percent, which would be the first miss since 1999.
Premier Li Keqiang has stated repeatedly that authorities will tolerate growth slightly below target as they try to reshape the economy so it is driven more by domestic consumption and less by exports and investment.
Li has indicated that the leadership’s bottom line is maintaining employment to ward off social unrest, a policy priority. The government has said growth of 7.2 percent is needed to keep employment steady.
“Although economic growth has slowed in the third quarter, our employment and inflation situation are generally stable, which means the economy is still operating in a reasonable range,” statistics bureau spokesperson Sheng Laiyun said.
Private and official business surveys have suggested pressure on employment for much of the year, though there have been no reports of widespread layoffs.
Property headwinds
A weakening property market continued to weigh on broader activity in the third quarter, with revenue from property sales revenue and new construction tumbling in the first nine months of 2014, blunting the impact of earlier stimulus measures and a long-awaited pick-up in exports.
“The weakest part of China’s economy is still the property sector,” said Wang Tao, analyst at UBS in Hong Kong.
“The government has relaxed some controls recently and property sales may pick up in the fourth quarter. However, we may not see improvement in sectors like heavy industry and we expect the economy to continue to slow down.”
With house price declines spreading to a record number of cities and new construction tumbling, the government last month cut mortgage rates for some home buyers for the first time since the global financial crisis.
Few bright spots
Other data showed factory output rose 8.0 percent in September from a year earlier, beating expectations and marking a recovery from August’s six-year low of 6.9%.
But that appeared to be the lone bright spot. Fixed asset investment, an important driver of the economy, was weaker than expected, as were retail sales.
That followed data last week which showed inflation cooled to a near five-year low, highlighting sluggish domestic demand and a lack of pricing power for firms.
“While we do not see China will fall into a ‘hard landing’ scenario, we do see the risk of deflation is rising sharply,” ANZ economists said in a note.
The statistics agency downplayed that risk, saying there was no danger that consumer prices would fall in coming months.
While authorities have offered a steady stream of aid to more vulnerable sectors of the economy, they have ruled out massive stimulus as the country is still struggling with a mountain of debt, the hangover from 4tn yuan (US$650bn) of stimulus rolled out during 2008/09 global crisis. Government economists at top think tanks have said that if growth looked like dropping below 7%, authorities may take bolder and broader steps such as interest rate cuts.
“Today’s numbers don’t really suggest they have to do a big stimulus,” said Tim Condon, ING’s head of Asian research in Singapore.
“They can continue targeted measures. They’ve done quite a bit in the last couple of weeks. Maybe that’s enough.”