China's economy exceeded expectations in the fourth quarter of 2024, growing at a robust 5.4% year-on-year, according to data released Friday by the National Bureau of Statistics. The strong performance, fueled by a series of targeted stimulus measures, allowed Beijing to meet its annual growth target of "around 5%," with full-year GDP growth landing at exactly 5%.

This growth marked an acceleration from the 4.6% rate recorded in the third quarter, as China implemented policies aimed at stabilizing its economy amid ongoing domestic and international pressures. Analysts polled by Reuters had anticipated fourth-quarter growth to reach 5%, making the 5.4% expansion a notable surprise.

The late-2023 shift in policy direction, including a comprehensive stimulus package, played a significant role in reviving economic momentum. The Chinese government introduced a five-year fiscal package worth 10 trillion yuan ($1.4 trillion) to address local governments' financial strains. It also cut interest rates and rolled out consumer-oriented programs, such as trade-in discounts for used cars and home appliances, to boost domestic demand.

"The shift of policy stance in September last year helped the economy stabilize in Q4, but it requires large and persistent policy stimulus to sustain the recovery," said Zhiwei Zhang, president and chief economist at Pinpoint Asset Management, in a note.

Retail sales and industrial output showed resilience in December, growing 3.7% and 6.2% year-on-year, respectively. These figures underscore a recovery driven by both consumer and industrial sectors, despite lingering challenges such as weak domestic demand and a persistent real estate slump.

Despite the encouraging growth figures, the real estate sector remained a drag on the economy, with investment in the sector plunging 10.6% compared to the previous year. The downturn in real estate, coupled with uncertainty about future income, weighed on consumer confidence and spending.

Disposable income for urban residents grew by 4.4% in 2024, lagging behind overall economic growth, while rural residents fared slightly better with a 6.3% increase.

The National Bureau of Statistics warned of potential headwinds ahead, citing increasing adverse effects from the external environment and insufficient domestic demand. "More proactive and effective macro policies" will be required to sustain growth, the bureau said in a statement.

China's population declined for the second consecutive year, dropping by 1.39 million to 1.408 billion in 2024. This demographic shift presents a long-term challenge for sustained economic growth, as a shrinking labor force and aging population could strain public resources.

Additionally, China's consumer inflation hovered near zero, raising concerns about deflation. Wholesale prices fell for the 27th straight month in December, reflecting ongoing struggles in balancing production and demand.