China’s economy continues to slow

  • China’s economy grew by 6.4% in the year to December, the weakest pace since early 2009.
  • In 2018, GDP expanded by 6.6%, largely in line with the “around” 6.5% rate previously nominated by the government.
  • The major surprise from today’s data came from industrial output that accelerated noticeably, and unexpectedly, in the year to December.
  • Economists believe policymakers will continue to roll out targeted stimulus to help support the economy this year.

Chinese economic growth continued to slow in the final three months of 2018, expanding at the slowest year-on-year pace since the height of the GFC.

According to the National Bureau of Statistics (NBS), GDP grew by 6.4% compared to a year earlier, the weakest increase since Q1 2009.

The result was in line with market expectations, and down from 6.5% in the year to September.

By industry, the NBS said China’s tertiary sectors — mainly services — expanded by 7.6% during the quarter compared to a year earlier, outpacing growth of 5.8% and 3.5% respectively for the secondary and primary sectors over the same period.

After seasonal adjustments, the economy expanded by 1.5% in the December quarter, in line with economists’ expectations.


Compared to 2017, growth over the year stood at 6.6%, also a decade-low. The government was targeting growth of around 6.5% for the year. The small upside beat was helped by a 0.1% downward revision to GDP growth in 2017 announced by the government last week.

“In general, the national economy continued to operate in a reasonable range in 2018, achieving an overall stability and stability,” the NBS said in a statement translated by Google.

“At the same time, we must also see that the economic operation is stable and changeable, and the external environment is complicated and severe.

“The economy is facing downward pressure, and the problems in progress must be resolved in a targeted manner.”

While the GDP result was largely in line with expectations, keeping with the unusual trend of meeting or slightly exceeding forecasts seen in recent years, industrial output did not, lifting sharply in December.

From 12 months earlier output grew by 5.7%, breezing past the 5.3% increase that had been eyed by markets. Output previously grew by 5.4% in the year to November.

While volatile, the December result suggests the industrial parts of economy were carrying some reasonable momentum into the New Year, helped perhaps by previously-announced stimulus measures rolled out by policymakers to underpin economic activity.

Elsewhere, growth in retail sales and urban fixed asset investment offered few surprises in December.

From a year earlier retail sales grew by 8.2%, a small improvement from the 8.1% increase in November that was the weakest result in decades. The December result was in line with market expectations.

After a steady improvement in prior months, the positive momentum in fixed asset investment in urban areas stalled over the month, increasing by 5.9% compared to the level reported in 2017, below the 6% expansion expected.

The growth pace was unchanged from that reported between January to November compared to a year earlier.


“If you look at some of the positive spin for this data it’s that December industrial output and retail sales came in better than expected,” Christy Tan, Asia Head of Markets Strategy Research at the National Australia Bank (NAB), told Reuters.

“If we look at the breakdown of the commodity output, they seem to have grown at or above average levels for December.

“That may help remove or reduce some of the concerns of a growth slowdown becoming more entrenched this year.”

AMP Chief Economist Shane Oliver suggested the monthly activity indicators weren’t too bad.

“The industrial output and retail data point to some stabilisation in growth towards the end of last year,” he told Reuters.

“Overall they are not bad numbers although there will be some debate about how reliable these numbers are.”

Looking ahead, Oliver expects China’s GDP growth rate will slow further in 2019, pointing to the likelihood of further targeted stimulus to support economic activity.

“We are expecting a slowdown in Q1 led by exports, although for the year as a whole we are seeing 6.2%,” he said

“As far as policy response is concerned, I don’t think we are likely to see the kind of stimulus we saw in 2015/16.”

Tan at the NAB agrees that recent steps to stabilise growth are unlikely to be the last.

“There will be more stimulus,” she said.

“[Policymakers] have already announced some of the plans which are in approval stage and will be carried out over the course of the year.

“It’s still not time to relax on that front and we will see more effort on stimulus this year.”