Chinese Economy Expanded 4.9% In Third Quarter, But Recovery Has Some Holes In It

China said its gross domestic product jumped by 4.9% in the third quarter from a year ago – after a 3.2% gain in the second quarter.

However, despite the apparent acceleration in GDP, the third quarter increase came below the 5.2% forecast of China’s own economists. As such, risks to continued economic growth remain pronounced in the world’s second largest economy.

China’s National Bureau of Statistics, or NBS, said on a quarter-over-quarter basis, GDP climbed by 2.7% in the third quarter, slower than an expected rise of 3.2%.

“Generally speaking, the overall national economy continued the steady recovery and significant results have been delivered in coordinating epidemic prevention and development,” NBS stated. “However, we should also be aware that the international environment is still complicated and severe, with considerable instabilities and uncertainties, and that we are under great pressure of forestalling epidemic transmissions from abroad and its resurgence at home.”

Liu Aihua, a spokeswoman for NBS, further warned: “Some or most of the [internal economic] indicators have not returned to the normal growth level, and some of the cumulative growth rate has also declined.”

Taking into account a devastating first quarter – when GDP shrank by 6.8% -- China’s economy has grown by 0.7% through the first nine months from a year ago.

“China’s economy remains on the recovery path, driven by a rebound in exports,” said Yoshikiyo Shimamine, chief economist at Dai-ichi Life Research Institute in Tokyo. “Consumer spending is also headed in the right direction, but we cannot say it has completely shaken off the drag caused by the coronavirus.”

Shimamine added: “There is a risk that the return of lockdowns in Europe and another wave of infections in the United States will hurt consumer spending and trigger more job losses, which would be a negative for China’s economy.”

However, there were some bright spots in China’s economic picture -- retail sales rose by 3.3% in September from a year earlier, well above the 0.5% increase recorded in August. Industrial output jumped 6.9% in September after a 5.6% gain in August.

The Beijing government has tried to boost the economy through an array of measures, including tax cuts, reductions in lending rates and increased fiscal spending.

The International Monetary Fund has predicted the China’s economy will grow by 1.9% this year, just below the 2% expansion forecast by China’s central bank. However modest, that would make China the only prominent economy in the world to exhibit any growth this year.

“The single most important thing for the Chinese economy in the coming months is whether service consumption can catch up,” said Larry Hu, head of China economics at Macquarie Capital in Hong Kong.

Bruce Pang, head of macro and strategy research at China Renaissance investment bank, wrote in a note that China’s “return to economic dynamism with a faster-than-peers pace is the first step towards a global recovery.”

But Pang too worries about unemployment and falling household income in China.

Hu forecasts 5.5% GDP growth in the fourth quarter, followed by a 15% surge in the first quarter of next year. He expects the Chinese economy to expand by 8.5% in 2021.