China’s economy is showing signs of strain, with the third quarter of 2024 registering its slowest growth since early 2023. Though consumption and factory output figures slightly surpassed forecasts in September, the country’s struggling property sector continues to cast a shadow over the broader economic outlook. With global markets heavily reliant on China's economic performance, its challenges are sending ripples through the wider global economy.
The world’s second-largest economy grew by 4.6% between July and September, according to official data. This marginally exceeded a Reuters poll prediction of 4.5%, yet fell short of the 4.7% growth recorded in the previous quarter. Bruce Pang, Chief Economist at JLL, remarked, “China's Q3 2024 data is not a turn-up for the books. The performance aligns with market expectations, given the weak domestic demand, a still struggling housing market, and slowing export growth.”
This growth slowdown comes despite Beijing’s efforts to reignite the economy. Authorities have ramped up policy stimulus since late September, but analysts and markets are still waiting for more comprehensive details on the size and specifics of these measures. A clear road map is needed to stabilize China’s economy and offer long-term solutions, which is critical not only for China but for global economies interconnected with its trade, manufacturing, and investment flows.
Property Sector: A Lingering Drag
China’s property sector remains a critical challenge, with no clear signs of recovery despite multiple rounds of policy support over the past year. Property development has long been a major driver of the Chinese economy, accounting for about 25% of the country's GDP at its peak. With 70% of Chinese household wealth tied up in real estate, the continued downturn in this sector has had a profound effect on consumer confidence and spending.
Shane Oliver, Chief Economist at AMP, expressed skepticism about the impact of recent stimulus efforts on these results, noting, "I doubt that these numbers are affected by stimulus announced in September. It doesn't really change the story much on China. It's continuing to grow, but at a pretty subdued pace by historical standards."
Adding to the concern, China’s new home prices in September fell at the fastest rate since May 2015, despite the government’s attempts to stimulate demand. Steel output, a key indicator of construction activity, also dropped for the fourth consecutive month, signaling continued weakness in the property and construction sectors.
Sluggish Consumer Demand
Weak consumption is another hurdle for China’s economic revitalization. Major international brands, which had previously benefited from China’s growing consumer base, are feeling the pinch. EssilorLuxottica, the Franco-Italian maker of Ray-Ban and Oakley sunglasses, missed third-quarter revenue expectations, citing weak consumer demand in China as a major factor. As Chinese consumers remain cautious about spending amid economic uncertainty, businesses across various sectors are reporting sluggish sales.
The ripple effects of China’s slowing growth extend far beyond its borders. Many multinational companies that rely on Chinese demand for a significant portion of their revenues are beginning to feel the squeeze, which could further dampen global trade and investment flows. Countries heavily dependent on exports to China, particularly in Asia and Europe, may face economic slowdowns as Chinese demand wanes.
Export Sector: Losing Momentum
China’s export sector, which has traditionally been a bright spot in its economy, is also showing signs of weakening. Growth in exports slowed sharply in September, adding to concerns about the global economy’s vulnerability to China’s economic health. As China’s exports decline, so too does its role as a critical supplier of goods to international markets, potentially contributing to supply chain disruptions.
While China's policymakers have traditionally leaned on infrastructure investment and manufacturing to drive growth, they are now shifting focus toward stimulating domestic consumption to foster economic stability. However, this transition is proving to be a complex and slow process, particularly in the face of ongoing challenges in the property and export sectors.
Stimulus Measures: Waiting for Impact
To combat these issues, China’s central bank announced its most aggressive monetary support measures since the COVID-19 pandemic at the end of September. These include interest rate cuts, a 1 trillion yuan liquidity injection, and steps aimed at supporting the property and stock markets. However, despite these moves, investors remain cautious, awaiting more detailed information on the overall size of the stimulus package and the long-term plan for economic recovery.
Toru Nishihama, Chief Economist at the Dai-Ichi Life Research Institute in Tokyo, commented, “China has started to roll out a flurry of stimulus measures since last month. I'm not sure if those measures are sufficient or not. What I can say is that Chinese authorities are missing the mark—they are not doing what should be done while leaving structural problems unattended.”
China’s structural challenges, such as overcapacity, high debt levels, and an aging population, are not easily solved by short-term stimulus measures. Addressing these deeper issues will be critical for the country’s long-term economic health, but these reforms may be politically sensitive and economically disruptive in the short term.
Global Implications
China’s economic struggles pose risks not just for its domestic economy but for the global economy as well. As the world’s second-largest economy, China is deeply integrated into global supply chains and financial markets. A prolonged slowdown in China could have far-reaching consequences for global trade, investment, and economic growth.
Countries heavily dependent on Chinese demand, such as Germany, Japan, and South Korea, could see their own economies take a hit. The global commodity markets, especially for industrial metals like steel, could also suffer, given China’s outsized role in consuming these materials for its construction and manufacturing sectors.
Moreover, with China’s role as a major exporter of goods, a continued slowdown could contribute to global inflationary pressures. If China’s manufacturing output remains subdued, supply chain disruptions could worsen, leading to higher prices for goods around the world.
Uncertainty Ahead
China’s economic challenges underscore the complexity of managing the post-pandemic global economy. While Beijing is taking steps to stabilize its economy, the road ahead remains uncertain, with the property sector, consumer demand, and exports all facing significant headwinds. As global markets watch closely, the potential wider impact of China’s slowdown on the global economy cannot be ignored.
The coming months will be critical as China implements its stimulus measures and addresses its structural problems. How successfully it navigates these challenges will have profound implications, not only for its own economy but for the global economic landscape as well.
(Source:www.zawya.com)
The world’s second-largest economy grew by 4.6% between July and September, according to official data. This marginally exceeded a Reuters poll prediction of 4.5%, yet fell short of the 4.7% growth recorded in the previous quarter. Bruce Pang, Chief Economist at JLL, remarked, “China's Q3 2024 data is not a turn-up for the books. The performance aligns with market expectations, given the weak domestic demand, a still struggling housing market, and slowing export growth.”
This growth slowdown comes despite Beijing’s efforts to reignite the economy. Authorities have ramped up policy stimulus since late September, but analysts and markets are still waiting for more comprehensive details on the size and specifics of these measures. A clear road map is needed to stabilize China’s economy and offer long-term solutions, which is critical not only for China but for global economies interconnected with its trade, manufacturing, and investment flows.
Property Sector: A Lingering Drag
China’s property sector remains a critical challenge, with no clear signs of recovery despite multiple rounds of policy support over the past year. Property development has long been a major driver of the Chinese economy, accounting for about 25% of the country's GDP at its peak. With 70% of Chinese household wealth tied up in real estate, the continued downturn in this sector has had a profound effect on consumer confidence and spending.
Shane Oliver, Chief Economist at AMP, expressed skepticism about the impact of recent stimulus efforts on these results, noting, "I doubt that these numbers are affected by stimulus announced in September. It doesn't really change the story much on China. It's continuing to grow, but at a pretty subdued pace by historical standards."
Adding to the concern, China’s new home prices in September fell at the fastest rate since May 2015, despite the government’s attempts to stimulate demand. Steel output, a key indicator of construction activity, also dropped for the fourth consecutive month, signaling continued weakness in the property and construction sectors.
Sluggish Consumer Demand
Weak consumption is another hurdle for China’s economic revitalization. Major international brands, which had previously benefited from China’s growing consumer base, are feeling the pinch. EssilorLuxottica, the Franco-Italian maker of Ray-Ban and Oakley sunglasses, missed third-quarter revenue expectations, citing weak consumer demand in China as a major factor. As Chinese consumers remain cautious about spending amid economic uncertainty, businesses across various sectors are reporting sluggish sales.
The ripple effects of China’s slowing growth extend far beyond its borders. Many multinational companies that rely on Chinese demand for a significant portion of their revenues are beginning to feel the squeeze, which could further dampen global trade and investment flows. Countries heavily dependent on exports to China, particularly in Asia and Europe, may face economic slowdowns as Chinese demand wanes.
Export Sector: Losing Momentum
China’s export sector, which has traditionally been a bright spot in its economy, is also showing signs of weakening. Growth in exports slowed sharply in September, adding to concerns about the global economy’s vulnerability to China’s economic health. As China’s exports decline, so too does its role as a critical supplier of goods to international markets, potentially contributing to supply chain disruptions.
While China's policymakers have traditionally leaned on infrastructure investment and manufacturing to drive growth, they are now shifting focus toward stimulating domestic consumption to foster economic stability. However, this transition is proving to be a complex and slow process, particularly in the face of ongoing challenges in the property and export sectors.
Stimulus Measures: Waiting for Impact
To combat these issues, China’s central bank announced its most aggressive monetary support measures since the COVID-19 pandemic at the end of September. These include interest rate cuts, a 1 trillion yuan liquidity injection, and steps aimed at supporting the property and stock markets. However, despite these moves, investors remain cautious, awaiting more detailed information on the overall size of the stimulus package and the long-term plan for economic recovery.
Toru Nishihama, Chief Economist at the Dai-Ichi Life Research Institute in Tokyo, commented, “China has started to roll out a flurry of stimulus measures since last month. I'm not sure if those measures are sufficient or not. What I can say is that Chinese authorities are missing the mark—they are not doing what should be done while leaving structural problems unattended.”
China’s structural challenges, such as overcapacity, high debt levels, and an aging population, are not easily solved by short-term stimulus measures. Addressing these deeper issues will be critical for the country’s long-term economic health, but these reforms may be politically sensitive and economically disruptive in the short term.
Global Implications
China’s economic struggles pose risks not just for its domestic economy but for the global economy as well. As the world’s second-largest economy, China is deeply integrated into global supply chains and financial markets. A prolonged slowdown in China could have far-reaching consequences for global trade, investment, and economic growth.
Countries heavily dependent on Chinese demand, such as Germany, Japan, and South Korea, could see their own economies take a hit. The global commodity markets, especially for industrial metals like steel, could also suffer, given China’s outsized role in consuming these materials for its construction and manufacturing sectors.
Moreover, with China’s role as a major exporter of goods, a continued slowdown could contribute to global inflationary pressures. If China’s manufacturing output remains subdued, supply chain disruptions could worsen, leading to higher prices for goods around the world.
Uncertainty Ahead
China’s economic challenges underscore the complexity of managing the post-pandemic global economy. While Beijing is taking steps to stabilize its economy, the road ahead remains uncertain, with the property sector, consumer demand, and exports all facing significant headwinds. As global markets watch closely, the potential wider impact of China’s slowdown on the global economy cannot be ignored.
The coming months will be critical as China implements its stimulus measures and addresses its structural problems. How successfully it navigates these challenges will have profound implications, not only for its own economy but for the global economic landscape as well.
(Source:www.zawya.com)