China’s Economy Falters as GDP Growth Hits Historic Low
China’s economy expanded at its slowest pace since the 1970s, with a growth rate of 3% in 2022, missing the government’s target of 5.5% and the 8.1% recorded in 2021. However, this rate was better than the 2.7% predicted by the World Bank. Analysts will pay attention to the 2.9% growth in the last quarter of 2022, which exceeded expectations of 1.8%. The economy remained stable compared to the previous quarter, instead of the predicted decline of 0.8%.
The data indicated that China’s economic growth had slowed to its lowest point in approximately 50 years, with the exception of a 2.2% increase in 2020 during the first year of the Covid pandemic. Over the past three years, the Chinese government implemented strict lockdowns and widespread testing as part of its Zero-Covid strategy to control the spread of the virus. However, the government abruptly ended this approach without prior warning or preparation for vaccination or other medical measures. Despite this, the change in policy is expected to lead to a boost in economic growth in China in the next year and beyond. The World Bank predicts that GDP will accelerate to 4.3% in the current year and 5% the following year, predictions that are being exceeded by many independent economists.
The spread of the virus has created numerous concerns, one of which is the potential impact on consumer confidence as a result of the rising death toll. Disruptions to supply chains due to sick workers may impede economic recovery and negatively impact nations dependent on Chinese imports. Additionally, the state of the real estate market, with ongoing drops in property prices, could further hinder a resurgence of the economy, and it is expected that new government measures to support buyers will be implemented shortly.
China’s economic growth has significant ramifications for neighboring countries such as Australia, which heavily rely on Chinese demand for resources such as iron ore and gas. Following the announcement of GDP figures, shares of major Australian iron ore mining companies, BHP, Rio Tinto, and Fortescue, saw a decline of 1.1-1.7%, compared to a 0.1% decrease in the overall market.
China’s GDP had been slowing for a decade before reaching 2.24% in 2020, its slowest pace since the mid-1970s. Before that, growth sharply amid political campaigns such as the ‘Great Leap Forward’ and the Cultural Revolution. (Source: Macrotrends) pic.twitter.com/CiSIglgofD
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Retail sales in December were surprisingly better than expected, decreasing by only 1.8% instead of the predicted 9% drop. However, with the end of the zero-Covid strategy, the virus spread rapidly through the economy, resulting in many people becoming sick and unable to work.
Despite this, purchases of medicine and food saw significant increases, with medicine sales rising 39.8% year-on-year in December and food spending jumping to an annual rate of 10.5%. Additionally, investments in infrastructure, such as rail lines and bridges, contributed to 1.5% growth in the economy. As rich economies in Europe and North America slow, resource exporters are looking to continue expanding in 2023, particularly as net export growth becomes more difficult to achieve.
