China’s economy grew at the slowest pace in 25 years in 2015, with GDP growth easing to 6.9% from 7.3% in 2014. During the final quarter of 2015, the economy expanded by 1.6% quarter-on-quarter, slightly below estimates of 1.7% growth. But year-on-year growth met expectations at 6.8%, which is the slowest growth since 2009 at the height of the financial crisis.
Other indicators released today underlined the weakening but stable trend. Industrial output in December grew by 5.9% year-on-year, down from 6.2% in November and below estimates of 6% growth. Investment spending also eased, with fixed-asset investment in urban areas rising by 10.0% between January and December – the slowest since 2000. Retail sales continued to grow strongly at 11.1% year-on-year but fell short of expectations of 11.3% and is slower than the 11.2% growth registered in the previous month.
Today’s data is further evidence that the world’s second largest economy is losing steam but talks of a hard landing may be exaggerated. While the manufacturing sector continues to suffer from overcapacity and weak overseas demand, China’s service sector is growing in dominance and contributed to just over 50% of GDP last year for the first time in history.
A sharp drop in property investment has also contributed to the economic slowdown, impacting demand for construction materials such as cement and steel, as well as for household equipment and furnishing. Investment in the property sector was up just 1% in December as new housing starts plummeted by 14%.
Chinese authorities have carried out a series of reforms and stimulus measures to boost the economy and today’s middling numbers raise the prospect of more action in the coming months. Many analysts expect the People’s Bank of China to cut interest rates further while the yuan’s recent depreciation should give exporters a helping hand.
Markets reacted positively to the data as investors were relieved that the figures were not worse than anticipated and yet weak enough to speculate that the authorities would step in with further supportive policies. The Shanghai SE Composite index ended the day 3.2% higher, while the yuan maintained its steady range of the past week with Tuesday’s midpoint set at 6.5596 yuan per dollar.
Global markets also rose on the news, giving commodities a lift. The Australian dollar, which often serves as a liquid proxy for China’s economy, gained sharply to climb from the day’s low of 0.6838 against the US dollar to 0.6937 by mid-European session.
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