By Kevin Yao
BEIJING, Oct 19 (Reuters) - China's economy likely sped up slightly in the third quarter from a more than three-year low, helped by hot demand for the country's technological goods and fresh policy support, but further stimulus may be needed to sustain the momentum.
Beijing has leaned heavily on exports for growth this year, but that engine faces growing pressure as investment in AI-related sectors cools and trade tensions with the European Union escalate.
China's strategy of redirecting
credit and resources from property towards high-tech industries has created a two-speed economy, where strong factory output and exports mask weak consumption and private investment.
Data due on Monday is expected to show gross domestic product (GDP) grew 4.4% year-on-year in July-September, quickening from 4.3% in the second quarter - the weakest pace in more than three years, according to a Reuters poll.
The projected growth is below the 4.6% forecast in a Reuters poll in July and would be below the lower end of the official full-year target of 4.5% to 5%.
"While growth remains near the lower end of the government's target range, recent data suggest economic momentum improved meaningfully toward the end of the quarter, supported by resilient exports, a recovery in manufacturing activity and the initial effects of policy easing," said Zhou Hao, chief economist at Guotai Junan International.
The official manufacturing purchasing managers' index (PMI) showed factory activity rose in September, ending two straight months of contraction, while a private manufacturing PMI showed growth in activity hit a five-month high.
On a quarterly basis, the economy is forecast to have expanded 1.1% in the third quarter, accelerating from 0.9% in April-June, the poll showed.
CHINA'S EXPORTS POWER AHEAD
China's trade surplus widened more than expected in September as exports surged, keeping the country on track to surpass last year's record surplus of $1.2 trillion and likely intensifying trade tensions with major partners.
A deal with the EU to rein in Chinese hybrid-vehicle shipments could weigh on the booming auto trade.
GDP data is due on Monday at 0200 GMT. September activity data is expected to show industrial output growth accelerated to 5.5% year-on-year from 5.2% in August, while retail sales growth edged up to 0.6% from 0.4%. Fixed-asset investment in January-September is projected to have fallen 7.3%, versus a 7.2% drop in January-August.
GDP growth is forecast to edge up to 4.5% in the fourth quarter, putting full-year growth at 4.5%, before easing to 4.4% in 2027, according to the poll.
In late September, Beijing rolled out a fresh round of support measures, including targeted interest-rate cuts and mortgage subsidies, after the cabinet pledged stronger action to shore up growth and meet its annual target.
Earlier this month, authorities also allocated 550 billion yuan ($82 billion) in unused government debt quotas to help ease local government financial strains and support infrastructure spending.
"There remains room for further support measures, such as policies to boost employment and incomes and other measures to boost domestic demand," Lynn Song, ING's chief Greater China economist, said in a note. "Should economic momentum remain subdued into year-end, policymakers may respond with further fiscal stimulus and a broader easing of monetary policy."
China is likely to rely more on fiscal stimulus to spur growth, as faster producer price gains and a pickup in consumer inflation leave the central bank with limited room for high-profile monetary easing.
Analysts polled by Reuters expect the central bank to keep its benchmark lending rates, the loan prime rates, and banks' reserve requirement ratio unchanged through the first quarter of 2027.
An expected Politburo meeting and the annual Central Economic Work Conference in December could offer fresh clues on Beijing's policy priorities for next year.
(Reporting by Kevin Yao; Editing by Sam Holmes)
