As expected the slowdown in the Chinese economy saw 2018 GDP grow by 6.6% – the lowest annual growth rate for 29 years, supporting the picture of recent weaker performance seen in other indicators such as investment, retail sales, and industrial production.
The 6.6% met the annual target from the central government of ‘about 6.5%’, but that’s just about all you can say about last year which saw a sharp slowdown in growth from 6.8% in the first quarter to 6.4% in the final three months.
2018’s 6.6% was down from 6.8% in 2017 which only last Friday was restated from 6.9% to 6.8%, a move that made this year’s performance look a better.
That 6.9% figure was released nearly a year ago and western analysts are suspicious that it was suddenly trimmed just before the release of what was expected to be a set of weak figures – which they were.
On a quarterly basis, growth eased to 1.5% in the three months to December from 1.6% in the three months to September. That as down from 1.7% in the June quarter.
And with Reuters reporting last week that the 2019 GDP target will be a range of 6% to 6.5% it is clear the central government is not looking for any improvement in the coming 12 months.
Donald Trump’s tariffs on Chinese exports have not directly damaged GDP growth, the trade had instead hit hard at sentiment, triggering a slowdown in consumer spending and investment.
The government has adopted a series of fiscal and monetary stimulus measures since July (including a 1% cut in bank reserve ratios, leaving billions more than expected in the financial system to cover the normal drain at New Year (February 5) and outlined tax cuts and other spending plans on infrastructure.
But these measures have so far failed to reverse the slowdown which saw activity levels in manufacturing fall close to or just under contraction levels in December.
Analysts also say the weakening economy is a bit of an own goal as the government has cracked down on so-called shadow banking and finance measures which in turn have caused a contraction in lending, tighter credit conditions and weakening business confidence.
The crackdown on a solution in many northern industrial cities has also hit output and employment in steel and other metal processing sectors. Coal production cuts have been reversed as a result of rising mine closures and unemployment and some steel mills have been able to ease pollution controls.
Prices for steel products have weakened, along with profit margins, as a result of the continuing slowdown in property and housing. That’s why a clutch of new rail projects have been announced in recent weeks.
The slowing housing market is exerting additional downward pressure on the economy. Home price growth has slowed again and sales volumes are falling – all of which is forecast to lead to a slowdown in construction as developers avoid accumulating unsold inventory.
