China, with its 4Q growth right on the market consensus, has already accomplished its 5% growth target for 2025. As 2023 approaches the end of the year, the country experienced a bit of a reprieve from deflation. Persistent supply-demand mismatches may still pose significant downside risk to economic activity.
China’s GDP growth hit 4.5% year-on-year in the fourth quarter, reflecting a strong economic recovery and growth. On the plus side, that growth was definitely aided by high-flying industrial production, largely thanks to a roaring export sector that grew 5.5% for the year. Export boom At the center of this export phenomenon was a record goods trade surplus, which reached around 6% of China’s GDP. Further, net exports dragged down the overall growth number for the quarter by 1.6 percentage points.
Still, behind these positive indicators, the Chinese economy continues to struggle. Consumption weakened in Q4, with signs that the impact of the goods trade-in program waned over the quarter. On top of that, investment has tanked, with cracks appearing well outside the housing sector.
China’s GDP increased 4.5% y/y in Q4, on pace for the 5% objective for 2025. Strong exports propelled industrial output as a whole to impressive new heights. They surged 5.5% for the year, resulting in a new all-time high goods trade surplus of around 6% of GDP. Net exports added 1.6ppt to headline growth,” wrote Standard Chartered economists. Notably, they went on to shine a spotlight on the persistent strength of the services sector, sustained by a booming financial market. Investment trends haven’t exactly been in their favor.
Looking through these macroeconomic cushions to the other side, as the economy transitions to 2026, forecasters are expecting a robust 4.6% growth forecast. The formal goal for next year is expected to be adjusted downwards to a level between 4.5% and 5.0%.
Related Deflation calmed down considerably during 2022, ending the year with a reacceleration in inflation. Economists cautioned that continued supply-demand mismatches could keep a lid on industrial profits and capital spending.
China’s key economic indicators across the board depict a picture of resilience, particularly in trade and industry. As we are reminded by supply-demand imbalances and consumer spending that is still very weak, challenges clearly remain.