Data flatters to deceive

Robust data – but, ultimately, may prove disappointing

• Supportive base effects kept GDP growth buoyant in Q4:23. Further, most December data points will likely be relatively lively, compared with Q4:22, a time of China stonewalling Covid and severely disrupting its economy. Our proxy for economic activity has increased from 5.44 in September, to 6.13 in October and 7.37 in November. GDP growth may well come in from 4.9% in Q3:23, to 5.5%-6.0% in Q4:23, which would see officials achieving their 2023 GDP growth target of “around 5%”.
• However, such robust monthly macro data would be unlikely to carry into Q1:24.
• Policymakers realise that the economic recovery is shaky. This is why they introduced growth-stabilisation policies, such as ways to support additional infrastructure spending, and make life less difficult for the real estate sector supporting the “three major projects” in Q4:23. The Politburo has committed to step up counter-cyclical policy adjustments and implement a proactive fiscal policy, and the PBOC has revised its language to suggest that further easing is imminent.
• Meanwhile, Beijing may opt to continue deferring tough economic choices and trade-offs, maintaining a veneer of stability, as crystalized by another “around 5%” GDP growth target. However, both fiscal and monetary policy would need to be calibrated to have the kinds of positive multiplier effects to boost sentiment – both of households and private businesses – that have proved elusive in recent years.
• This year faces the same headwinds of last year: a contracting real estate sector; anaemic household consumption; poor business confidence; a narrowing trade surplus; weak local government finances.
• The Central Economic Work Conference (CEWC) has again vowed to improve the business environment, increase household incomes, and expand domestic demand — but offered little in terms of clear policy interventions. This lack of tangible policy initiatives that focus on boosting domestic demand relative to supply, which are needed to revive private sector investment and confidence, was the trend throughout last year. This implies, from a policy and economic performance perspective, a 2024 looking much like 2023.
• Base effects artificially boosted economic growth by around one percentage point last year. Without such supportive base effects that boosted economic growth artificially by around one percentage point in 2023, we foresee around 4%-4.5% for 2024.