What to Watch in China GDP Report: Tariffs, Consumption, Babies

(Bloomberg) -- The outlook for the world's second-largest economy remains in laser focus, as questions over the global outlook multiply.

Gross domestic product probably expanded 6.4 percent from a year earlier last quarter, according to a Bloomberg survey of economists ahead of the report, due 10 a.m. Monday in Beijing. That would match the slowest pace since early 2009, in the aftermath of the global financial crisis.

That's on top of a raft of dismal recent economic figures including worsening factory sentiment, deflation risks and falling exports. Authorities have responded with stronger credit supply, tax reductions and a boost to infrastructure investment, but those measures may prove insufficient to brake the slowdown at a time when international conditions are also deteriorating.

To better gauge China's economy, here's what to watch in the reports:

Tariff Pain

Data from the factory floor also due Monday should reveal the effects of the trade dispute with the U.S. and a global slowdown. Sentiment at manufacturers slumped into the contraction zone last month, and a reading of new export orders sank to the lowest level in more than three years.

Deciphering the data isn't easy, as exporters front-loaded shipments to the U.S. ahead of more tariffs last year, creating a temporary surge. That effect likely faded in December, contributing to the worst export decline since 2016. Output of tariff-hit goods such as electronic machinery will probably reveal a more accurate picture.

Demand at Home

China's demand for copper, coal, iron ore and machinery hinges on nationwide fixed-asset investment, which weakened last year before rebounding on accelerating manufacturing spending. That was driven by healthy profits at industrial firms and a push to upgrade equipment.

Now, with factories hurting there's a risk that investment will slow. In addition, the property market is cooling, as seen in the latest slowdown in housing prices, and that poses a risk to property investment. Infrastructure construction, on the other hand, ticked up late last year and will likely remain solid with local governments expanding and expediting special bond sales.

Labor Health

The surveyed jobless rate released with the GDP data and a labor market demand-to-supply ratio published separately by the human resources ministry will show whether the economic slowdown has hurt workers yet. Currently, unemployment is low.

Signs of stress are already appearing, however, with reports that technology companies are freezing hiring and migrant workers returning home early for the lunar new year. Monday's data will signal whether those are isolated or signs of a broader economic downturn.

Pressure on Consumption

In a change from previous downturns in which China could bank on support from consumers, slowing retail sales are making the government nervous. On top of tax cuts, the nation is using creative measures to boost spending, such as promoting sports or urging shops to stay open later at night.

On Monday, the December retail sales growth is forecast to tick up a little, but it's still well below where it was this time last year. For a broader look, the household expenditure data released with the GDP report includes some services spending omitted from retail series, and the pace of income expansion will give some hints as to the outlook for consumption.

Babies

One number usually ignored in the annual GDP report but crucial for China's long-term economic health: new-born babies.

Some demographers said the number of births last year probably fell below 15 million -- a figure that would bring the nation closer to when its population starts to shrink. A top Chinese research institution projected the population could start shrinking as soon as 2027 -- three years earlier than expected. That will mean big changes to the labor force of the world's second-largest economy, and to producers of formula, diapers and almost everything in the future.

To contact Bloomberg News staff for this story: Xiaoqing Pi in Beijing at xpi1@bloomberg.net

To contact the editors responsible for this story: Jeffrey Black at jblack25@bloomberg.net, James Mayger

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With assistance from Bloomberg