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China's Q4 GDP growth ends 2020 in solid position after COVID-19 shock

  • Gabriel Crossley and Kevin Yao

    Reuters

Beijing   /   Mon, January 18, 2021   /   11:18 am
China's Q4 GDP growth ends 2020 in solid position after COVID-19 shock People wearing face masks as a preventive measure against the Covid-19 coronavirus commute during rush hour in Beijing on Oct. 15, 2020. (AFP/NICOLAS ASFOURI )

China’s economy grew at a faster-than-expected pace in the fourth quarter of last year, ending a rough coronavirus-striken 2020 in remarkably good shape and remained solidly poised to expand further this year.

Gross domestic product (GDP) expanded 6.5 percent year-on-year in the fourth quarter, data from the National Bureau of Statistics showed on Monday, quicker than the 6.1 percent forecast by economists in a Reuters poll, and followed 4.9 percent growth in the third quarter.

GDP grew 2.3 percent in 2020, the data showed, making China the only major economy in the world to avoid a contraction last year as many nations struggled to contain the COVID-19 pandemic.

“The higher-than-expected GDP number indicates that growth has stepped into the expansionary zone, although some sectors remain in recovery,” Xing Zhaopeng, economist at ANZ in Shanghai.

“Policy exiting will pose counter-cyclical pressures on 2021 growth.”

Backed by strict virus containment measures and policy stimulus, the economy has recovered steadily from a steep 6.8 percent slump in the first three months of 2020, when an outbreak of COVID-19 in the central city of Wuhan turned into a full-blown epidemic. The world’s second-largest economy has been fueled by a surprisingly resilient export sector, but consumption - a key driver of growth - has lagged expectations amid fears of a resurgence of COVID-19 cases.

Data last week showed Chinese exports grew by more than expected in December, as coronavirus disruptions around the world fuelled demand for Chinese goods even as a stronger yuan made exports more expensive for overseas buyers.

Yet, underscoring the massive COVID-19 disruptions worldwide, China’s 2020 GDP growth was the weakest pace in more than four decades.

Overall, the slew of brightening economic data has reduced the need for more monetary easing this year, leading the central bank to scale back some policy support, sources told Reuters, but there would be no abrupt shift in policy direction, according to top policymakers.

On a quarter-on-quarter basis, GDP rose 2.6 percent in October-December, the bureau said, compared with expectations for a 3.2 percent rise and a revised 3.0 gain in the previous quarter.

Highlighting the weakness in consumption, retail sales fell 3.9 percent last year, marking the first contraction since 1968, records from NBS showed. Growth in retail sales in December missed analyst forecasts and eased to 4.6 percent from November’s 5.0 percent, as sales of garments, cosmetics, telecoms and autos slowed.

However, China’s vast manufacturing sector continued to gain momentum, with industrial output rising at a faster-than-expected rate of 7.3 percent last month from a year ago, hitting the highest since March 2019.

Analysts expect economic growth to rebound to 8.4 percent in 2021, before slowing to 5.5 percent in 2022.

While this year’s predicted growth rate would be the strongest in a decade, led by a big jump in the first quarter, it is rendered less impressive coming off the low base set in pandemic-stricken 2020.

Some analysts also cautioned that a recent rebound in COVID-19 cases in China could impact activity and consumption in the run-up to next month’s long Lunar New Year holidays.

China reported more than 100 new COVID-19 cases for the sixth consecutive day, with rising infections in the northeast fuelling concerns of another national wave ahead of a major holiday season.