China’s GDP growth slowed to its lowest in almost 30 years as the US-China trade war weighed in, but improvements in the last quarter could mean Beijing will pare its stimulus focusing on deleveraging and reining in the property market.

Data released showed Q4 expansion was at 6%, the same as the third quarter and the full-year GDP grew at 6.1%, down from 6.6% in 2018 and the slowest since 1990. It was in line with analysts’ expectations.

“Monthly data showed that economic activities, including retail sales, industrial production and fixed-asset investment, have bottomed out in December. The economic data suggests that the counter-cyclical policies have come into play. Supported by the structural monetary easing and fiscal stimulus, the growth rate of fixed-asset investment picked up,” said JP Morgan Asset Management Global Market Strategist Chaoping Zhu.

Industrial production and the fixed asset investment growth rate rose to 6.9% and 5.4% (ytd) on year in December from 6.2% and 5.2% in the previous month. This meant that capital spending in December was a robust 7.3%.

This pick-up in December signaled the momentum would continue into early 2020 and even though the US government had maintained most of the tariffs on Chinese products, the signing of the phase-one trade deal is a signal that the situation was unlikely to deteriorate.

“We believe China could experience a short period of growth stability in Q1, perhaps even into Q2, but headwinds from the property sector, worsening fiscal conditions and limited policy space could then lead to a further growth slowdown,” said Nomura’s Chief China Economist Ting Lu, adding that quarterly GDP growth of below 6% was inevitable in the coming quarters.

“We expect Beijing to introduce more easing measures and stimulus in coming months, but the scale of the stimulus package will likely be much smaller than those in previous easing cycles,” he said.

This would also accommodate Beijing’s longer term objectives – reining in excess leverage and speculation in the property market.

“It is likely that the government could take the chance of an economic warm-up to consolidate local government finance and continue the property market control, which might set an up-limit for GDP growth in this year,” said JP Morgan’s Zhu.

And yet economists warn it is too early to say the worst is behind us.

“Despite the recent uptick in activity, we think it is premature to call the bottom of the current economic cycle. External headwinds should ease further in the coming quarters thanks to the ‘Phase One’ trade deal and a recovery in global growth. But we think this will be offset by a renewed slowdown in domestic demand, triggering further monetary easing by the People’s Bank,” said Capital Economics’ China Economist Martin Rasmussen.