- GDP growth accelerates to 4.5% in 1Q, fastest pace in a year
- Retail sales surged in March, but investment missed forecasts
According to Bloomberg article published on April 18, 2023, China’s economy grew at the fastest pace in a year in the first quarter led by a surge in consumer spending and a pickup in factory output, showing the recovery is well on track.
Gross domestic product expanded 4.5% in the January-to-March period from a year prior, data released by the National Bureau of Statistics showed Tuesday, higher than the 4% forecast by economists in a Bloomberg survey. In March alone, retail sales soared 10.6% from a year earlier, the biggest gain since June 2021.
The rebound in the first quarter puts the economy on track for faster growth this year after being dragged down last year because of the property market slump and pandemic restrictions. Growth is expected to accelerate in the second quarter, largely due to the low base of comparison from last year, when Shanghai was in lockdown — but also as the housing market stabilizes and consumers continue to spend. That would bring the government closer to meeting its relatively conservative growth target for the year of around 5%.
The March data provided several reasons to be cautious. While industrial output rose 3.9% from a year ago, it was weaker than the 4.4% projected by economists. Growth in fixed-asset investment slowed to 5.1% in the first quarter, missing expectations, while property investment continued to contract.
“Property investment is still lagging and missed expectations, which echoes with broader concerns that the property market rebound could be a short-lived one as investments are not picking up,” said Willer Chen, a senior analyst at Forsyth Barr Asia Ltd. “The upbeat retail sales number indeed may boost sentiment, given previous concerns on consumption recovery. But still, sustainability matters.”
Financial markets were relatively muted after the GDP report. The benchmark CSI 300 Index of equities rose 0.1% as of the midday break, while the offshore yuan was little changed. China’s 10-year government bond yield slipped 1 basis point to 2.84%.
The jobs market and wage growth also haven’t returned to normal yet. Incomes of urban residents grew just 2.7% in inflation-adjusted terms during the first quarter from a year earlier, well below growth rates above 5% in pre-pandemic times. The youth unemployment rate climbed to 19.6% in March, close to a record, while the nationwide urban jobless rate remained elevated at 5.3%.
Other indicators this month have also provided conflicting signals about the recovery: credit and exports surged in March, while inflation remained weak, a sign of muted domestic demand in the economy. Fu Linghui, a spokesman for the NBS, said Tuesday the economy’s rebound is “not yet solid.”
Industrial production in March was dragged down by a 22% slump in the production of micro computer equipment and an extended decline in integrated circuit output, possible evidence of the damage of US tech restrictions on China. Stronger growth in cement and vehicle production helped to underpin industrial output in the month.
What Bloomberg Economics Says ...
“The brisk pickup in China’s GDP growth in the first quarter matched our expectations. The pleasant surprise was the strength of retail sales in March — showing that a long-sought reorientation toward consumption was a big driver of the recovery from the Covid slump.”
“Less encouraging was an unexpected slowdown in fixed-asset investment. That’s somewhat concerning given that slower global growth is damping the rebound in industrial production.” Chang Shu and Eric Zhu, economists
Economists are divided about whether the government needs to roll out more stimulus to boost growth. People’s Bank of China Governor Yi Gang said last week the economy was on track to grow in line with the GDP target, suggesting there’s no need for major stimulus. The central bank on Monday refrained from cutting a key interest rate and curbed its cash injection into the banking system — although some analysts still see scope for easing in coming months.
“As the economy gains strength, there is no need for the PBOC to cut interest rates,” said Raymond Yeung, chief economist for Greater China at Australia & New Zealand Banking Group Ltd. “All they need to do is to ensure sufficient liquidity in the money market.”
