Liu Yu: GDP 5.4%, interest rate cuts may be delayed

On January 17, the National Bureau of Statistics announced the GDP and economic data for the fourth quarter of 2024 (unless otherwise specified, all years refer to 2024). How should we view the marginal changes in economic data?

First, GDP exceeded expectations, and production growth accelerated. The GDP for the fourth quarter of 2024 grew by 5.4% year-on-year, higher than the expected value of 5%, marking the highest value in the last six quarters and rebounding by 0.8 percentage points from the third quarter. In our analysis "Annual 5% or Already Stable," we noted that the production data growth rate in October-November was relatively high, and fiscal factors also supported the fourth-quarter data (the net issuance of national and local bonds in the fourth quarter of 2024 was 1.9 trillion more than the same period in 2023), collectively boosting the production-based GDP for the fourth quarter. The weighted year-on-year growth rate of industry and services in December further increased from the 5.9% in October-November to 6.4%, raising the average for the fourth quarter to 6.1%. At the same time, the difference between the quarterly average growth rate of the weighted industrial and service sectors and the GDP growth rate reached 0.66 percentage points in the fourth quarter, the highest among the four quarters of 2024 (the previous three quarters ranged between 0.2 and 0.4 percentage points). Since the statistics for industrial added value and service production index mainly cover large-scale enterprises, the widening growth rate difference reflects a relatively higher rebound in the growth rate of large-scale enterprises.

Due to the impact of the economic census data revision, the revised quarterly data for 2023 has not yet been released, making it temporarily impossible to calculate the quarterly current price GDP growth rate and deflator index. For the whole year, the GDP at constant prices in 2024 is expected to grow by 5.0% year-on-year, while the current price GDP is projected to grow by 4.2% year-on-year, with the annual GDP deflator index approximately -0.7% year-on-year.

Second, consumption still needs to be boosted, with the resident consumption propensity in the fourth quarter of 2024 lower than the same period in 2023. In the fourth quarter, the proportion of per capita consumption expenditure to disposable income was 73.2%, which is 4.4 percentage points lower than the same period in 2019 and 0.8 percentage points lower than the same period in 2023. Based on disposable income and this ratio, and referencing the consumption rate of the same period in 2019, residents saved an additional 457 yuan per capita in the fourth quarter of 2024, bringing the cumulative excess savings per capita since 2020 to about 4,700 yuan, roughly equivalent to 11.3% of the per capita income in 2024. Looking at urban and rural areas, the consumption rate in urban areas for the fourth quarter was 69.4%, which is 4.3 percentage points lower than the same period in 2019, while the average consumption rate in rural areas was 85.3%, which is 5.1 percentage points lower than the same period in 2019.

The retail growth rate in December was close to the average value for October-November. In December, retail grew by 3.7% year-on-year, which is relatively close to the average retail growth rate of 3.9% in October-November. Comparing the average values from March to August and September to December, it can be observed that, supported by policies such as trade-in programs, the central growth rate of retail year-on-year increased from 2.7% to 3.7%, a rise of 1 percentage point, corresponding to an additional consumption of about 169.2 billion yuan by residents in the fourth quarter. If we directly calculate the increase in retail sales, the average monthly year-on-year growth in retail rose from 98.8 billion yuan to 155.7 billion yuan, corresponding to an additional consumption of about 227.4 billion yuan by residents in the fourth quarter It is worth noting that most of the improvement in retail sales comes from above-limit units. The growth rate of above-limit retail sales increased from 0.9% in the period from March to August to 3.4%, an increase of nearly 2.5 percentage points, while above-limit units account for about 36% of overall retail, meaning that the rebound of above-limit units has driven overall retail by about 0.9 percentage points.

The home appliances involved in the trade-in policy maintained a high growth rate, continuing to drive retail. In December, the year-on-year growth rates for home appliances and furniture were 39.3% and 8.8%, respectively, contributing about 2.3 percentage points to the year-on-year growth of above-limit goods retail, higher than the average of 1.7 percentage points from September to November. However, the growth rate of automobile retail slowed to 0.5%, significantly lower than 3.7% and 6.6% in October and November.

Third, the growth rate of export delivery value continues to rise, reflecting a possible "export rush" logic. In December 2024, the year-on-year growth of export delivery value was 8.8%, up from 7.4% in November, while it was between 3.4% and 3.7% in September and October. In our analysis "5% for the whole year may have stabilized," the "export rush" effect may be reflected in the data from November 2024 to January 2025. Referring to the fluctuations in export growth before and after the imposition of tariffs on $200 billion worth of goods exported to the U.S. in 2018-2019, the export growth to the U.S. once rose by about 10-15 percentage points. The overall export boost was about 2-3 percentage points. The current increase in the growth rate of export delivery value is about 4-5 percentage points, some of which may be driven by the "export rush." The direct contribution of export delivery value to industry in November and December was about 0.8-1.0 percentage points, significantly up from 0.3-0.4% in September and October. From the perspective of value added by industry, the three industries with the largest rebound in December were automobiles (+5.7 percentage points), electrical machinery and equipment (+4.0 percentage points), and general equipment (+3.3 percentage points), with automobile exports accounting for about 9% of revenue, while the other two industries are around 15%.

Fourth, real estate sales continue to recover, but investment remains weak. In December, real estate sales were better than the same period in 2023, but the sales area was relatively weak, reflecting relatively high enthusiasm for new homes in first- and second-tier cities. In December, the sales area of commercial housing was 11,267,000 square meters, and the sales amount was 1,162.5 billion yuan, with month-on-month increases of +37.6% and +40.6%, respectively. Compared to seasonal increases, the average increase from 2021 to 2023 during the same period was 42.5% and 42.6%, while the increases in 2023 were 41.6% and 38.6%. From the cumulative year-on-year growth perspective, the decline in commercial housing sales from January to December narrowed by 2.1 percentage points, and the cumulative year-on-year decline in sales area narrowed by 1.4 percentage points. Meanwhile, the cumulative year-on-year growth rate of real estate investment slightly decreased by 0.2 percentage points to -10.6%. In terms of financing, the source of funds for real estate development decreased by 7.1% year-on-year in the month, lower than November's -4.8%, but better than the previous double-digit negative growth From a split perspective, the growth rate of personal mortgage loans has turned positive from negative, while other areas have not reached the previous month's levels. In terms of housing prices, the price of second-hand residential properties in first-tier cities increased by 0.3% month-on-month, marking a rise for the third consecutive month. The sales price of newly built commercial residential properties also shifted from flat to a growth of 0.2% month-on-month. The focus going forward will be on sales, prices, and inventory conditions in first-tier cities.

Fifth, infrastructure investment rebounds. From January to December, fixed asset investment accumulated a year-on-year growth of 3.2%, slowing down by 0.1 percentage points compared to the previous month; the year-on-year growth for the month was 2.2%, slightly lower than the previous month's 2.3%. Breaking it down, real estate and manufacturing have slowed down, while infrastructure has rebounded. Real estate investment year-on-year for the month slowed from -11.6% to -13.3%, and manufacturing investment slowed from 9.3% to 8.3%; meanwhile, infrastructure (excluding electricity) investment year-on-year for the month rebounded from 3.3% to 6.3%. The arrival of special bond funds and the repayment of corporate debts through special refinancing bonds may support infrastructure investment. In terms of equipment renewal, from January to December 2024, investment in the purchase of equipment and tools increased by 15.7% year-on-year, slightly slowing down by 0.1 percentage points compared to the previous month, contributing to a 2.2 percentage point increase in total investment. This indicates that excluding equipment renewal, other types of investment contributed only 1.0 percentage point to overall investment.

Sixth, improvement in industrial supply-demand matching. In December, the industrial production and sales rate rebounded significantly by 1.6 percentage points to 98.7%, with a year-on-year increase of +0.1 percentage points, marking the first positive turn this year, while the average from January to November was -0.6 percentage points. In December, the weighted year-on-year growth of retail, investment, and export delivery value increased by 4.0%, accelerating by 0.5 percentage points compared to the previous month, with the weighted year-on-year growth of industry and services also accelerating by 0.5 percentage points. From the perspective of month-on-month seasonally adjusted annualized growth rates, retail and investment grew by 1.4% and 4.0% respectively in December, still significantly lower than the industrial added value growth of 6.2%, indicating that there is considerable room for boosting domestic demand.

Overall, production data remains strong, while domestic demand, especially consumption growth, still needs to be boosted. The GDP growth rate in the fourth quarter of 2024 reached the highest level in the last six quarters, mainly due to intensified counter-cyclical adjustments after September 24, effectively boosting the economy. On the secondary factor side, exports face potential risks from increased tariffs by the United States, pushing up the growth rate of export delivery value in October and November. In January 2025 (before the Spring Festival), the rush to export may still support industrial production, but subsequent tariff disturbances will increase the economy's reliance on domestic demand. Observing consumption-related data, retail growth has increased from around 3.7-3.9% in recent months to 5%, still having more than 1 percentage point of room for improvement; while the household consumption rate in the fourth quarter was lower than in previous years, reflecting that after lowering the existing mortgage rates, households have not significantly increased their consumption expenditures; consumption contributed 1.6 percentage points to GDP in the fourth quarter, with a contribution rate of 29.6%, significantly lower than the consumption's proportion of GDP at 55.7%, indicating that consumption growth is slower than overall GDP growth. Therefore, there is still considerable room for improvement in consumption Economic data is better than expected, and expectations for monetary easing may focus more on external factors such as tariffs. Since the beginning of the year, the central bank has emphasized stabilizing the exchange rate and preventing capital outflows, specifically reducing reverse repos and suspending government bond purchases. This may be due to economic data being better than expected, which reduces the necessity for immediate monetary easing. For the bond market, the current issue is that the curve is relatively flat, with the yield spread between 10-year and 1-year government bonds, as well as the yield spread of government development bonds, at their lowest since 2020, at 4.5% and 0.1% respectively. The subsequent curve adjustment, whether it will be a decline in short-term rates or an increase in long-term rates, largely depends on the upcoming monetary policy. Against the backdrop of better-than-expected domestic economic performance, the trigger for future policy easing may depend more on the tariff rates imposed by the United States. Different tariff rates may lead to varying degrees of hedging policies (see "Facing Trump, Three Scenarios"). If the U.S. tariff increases are less than expected or basically meet expectations, monetary easing may be delayed, and long-term rates may remain volatile. If U.S. tariff increases exceed expectations, monetary easing may lead to a decline in short-term rates, while whether long-term rates can continue to decline may depend on new interest rate cut expectations.

Overseas disturbances and expectations for stable growth policies may be the main influencing factors in the next phase. After the policy expectations of U.S. tariff increases are realized, the export rush effect may diminish, and overseas uncertainties may increase, leading to a greater reliance on domestic demand. In this context, market attention to domestic stable growth policies will significantly increase. Structurally, consumption and technology sectors may directly benefit from supportive policies; consumption growth still needs to be boosted, and consumption promotion policies may become one of the market's focal points; at the same time, the broader technology sector may benefit from the logic of domestic substitution, which is also worth paying attention to.

This article is authored by the Macro Team of Huaxi Fixed Income, Liu Yu et al., source: Yu Yan Debt Market (ID: gh_0d8a147b24ac), original title: "GDP 5.4%, Interest Rate Cut May Be Delayed"

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