China’s economy experienced a notable acceleration in the third quarter, growing by 4.5% year-on-year, surpassing analyst expectations and marking an improvement from the previous quarter’s performance. This growth was predominantly driven by a strong surge in exports, which compensated for the ongoing downturn in the property market and weak consumer spending.
While exports and industrial output showed strength, domestic demand remains a concern, with retail sales showing modest growth and the property sector facing a deepening slump. Authorities are continuing to roll out fiscal support measures to bolster the economy.
China's Economy Surges to 4.5% Growth in Q3 Driven by Export Boom, Exceeding Forecasts
China's economic engine roared back to life in the third quarter, posting a robust 4.5% year-on-year growth. This acceleration surpasses the previous quarter's three-year low of 4.3% and edged out economists' expectations of 4.4%, primarily fueled by a surge in exports that helped counteract persistent weakness in the property sector and subdued domestic consumer spending.
A general view of the Central Business District (CBD) in Beijing.
The rebound in September, which saw retail sales grow by 1.1% and industrial output increase by 5.5% from the previous year, salvaged a somewhat lukewarm performance in July and August. This improvement is largely attributed to enhanced government investment and a strong external sector, which contributed to a record monthly trade surplus of $133.5 billion.
While the export-led growth provides a positive momentum heading into the fourth quarter, with a full-year growth rate forecast at 4.7%, the overall economic picture remains somewhat lopsided. Fixed asset investment in urban areas continued to decline, falling 7.2% in the first nine months of the year. The real estate sector remains a significant drag, with investment in property development plummeting 20.6% during the same period.
"The prolonged housing slump will continue to limit the spillover from stronger industrial activity to the wider economy," noted Sheana Yue, senior economist at Oxford Economics. She also expressed skepticism about a near-term bottoming out in the property market, citing weak indicators in home sales, construction, and prices.
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The disparity between robust industrial activity and weak consumer demand is further highlighted by producer prices climbing at their fastest pace in over four years (5% in September), while consumer inflation remains subdued below 1%. This suggests that businesses are absorbing cost shocks rather than passing them on to consumers, indicating persistent excess capacity and weak demand.
Despite these challenges, Beijing has been implementing fiscal support measures, including targeted rate cuts and mortgage subsidies, as well as allocating significant debt quota to boost infrastructure spending. While the current growth pace may lessen the immediate need for large-scale stimulus, these measures are expected to support investment and economic activity in the coming quarters. The People's Bank of China is largely anticipated to maintain its benchmark lending rates unchanged this year.
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While exports and industrial output showed strength, domestic demand remains a concern, with retail sales showing modest growth and the property sector facing a deepening slump. Authorities are continuing to roll out fiscal support measures to bolster the economy.
