China slowed in late 2022, but less than expected

China Macro: Q4 GDP data better than expected

China’s official GDP data for Q4-2022 and December activity data published this morning generally came in better than expected. In quarterly terms, real GDP stagnated in Q4, whereas PMIs and various activity data suggested that GDP would have shown a contraction in Q4 (although not as deep as in Q2-22 when China was faced with broad and lengthy lockdowns following the spread of Omicron). This brought annual growth down from 3.9% yoy in Q3 to 2.9% in Q4, beating consensus expectations (1.6% yoy) including ours (1.8% yoy). The slowdown in Q4 reflects a combination of headwinds from the pandemic (with a broadening of lockdowns in October and November followed by a sharp rise in cases and deaths following the December U-turn in Covid-19 policy), the real estate downturn and a clear slowdown in external demand. Real GDP growth over the full year 2022 came in at 3.0%, down from a slightly revised 8.4% in 2021 and sharply below the official growth target of 5.5% announced in March 2022.

December data bring retail sales surprise

The big surprise in the macro activity data for December came from retail sales. Retail sales jumped by 5% mom in December driven by strong car and medicine sales, with the annual contraction becoming shallower, at -1.8% yoy (November: -5.9%, consensus: -9.0%). Industrial production also did better than expected, although slowing to 1.3% yoy (November: 2.2%, consensus: 0.1%). Fixed investment slowed to 5.1% yoy over the full year 2022 (consensus: 5.0%, Jan-Nov: 5.3%). The unemployment rate in urban areas dropped to 5.5% (November: 5.7%, consensus: 5.8%). Bloomberg’s monthly GDP estimate stabilised at 3.1% yoy in December, the weakest growth pace since May 2022. Going forward, we expect the acceleration of the Zero-Covid exit and the stepping up of support, including for the property sector, to result in a phased rebound in consumption and private investment in the course of this year. We will publish an updated view on our growth expectations for China in our January Global Monthly next week.