(Reuters) – China’s economy grew 5.3% in the first quarter year-on-year, official data showed on Tuesday, comfortably beating analysts’ expectations, a welcome sign for policymakers as they try to shore up demand and confidence in the face of a protracted property crisis.
Analysts polled by Reuters had expected first-quarter gross domestic product (GDP) to expand 4.6% from a year earlier, compared to 5.2% in the previous three months.
The government is aiming for economic growth of around 5.0% for 2024, a target that many analysts believe is ambitious and may require more stimulus.
On a quarter-by-quarter basis, GDP grew 1.6% in January-March, above expectations for a 1.4% rise and compared with a revised 1.2% gain in the previous quarter.
KEY POINTS
* Q1 GDP +5.3% y/y (f’cast +4.6%, Q4 +5.2%)
* Q1 GDP +1.6% q/q s/adj (f’cast +1.4%, Q4 +1.2% revised)
* March industrial output +4.5% y/y (f’cast +6.0%, Jan-Feb +7%)
* March retail sales +3.1% y/y (f’cast +4.6%, Jan-Feb +5.5%)
* Jan-March fixed asset investment +4.5% y/y (f’cast +4.1%, Jan-Feb +4.2%)
* Jan-March property investment -9.5% y/y (Jan-Feb -9.0%)
MARKET REACTION:
Chinese stocks largely shrugged off the better-than-expected economic growth data, with the blue-chip CSI 300 Index down 0.5% as of 0220 GMT. China’s strengthened slightly.
COMMENTARY:
TAO CHUAN, CHIEF MACRO ANALYST, SOOCHOW SECURITIES, BEIJING
“The GDP figure is in line with our expectations. The first-quarter economy was more driven through low-cost industrial production and exports, or price for volume. This will be the driver for this year’s economy, but could put pressure on corporate earnings in the long run. Meanwhile, the gap between real GDP and nominal GDP has expanded, reflecting that demand-side problems urgently need to be resolved.”
RAYMOND YEUNG, CHIEF CHINA ECONOMIST, ANZ, BEIJING
“The recent economic recovery has been driven by exports. I think it is a two-speed economy. Domestic demand is still weak, but exports are good. This is likely to continue into the second quarter, so the economy should be relatively good in the first half. Although when it comes to the second, it would depend on economic policies. If the government’s focus shifts back to reform, our estimate on the second half would be relatively conservative.
“Our forecast is the economy is on track to grow more than 4.5% this year, but that’s still lower than the government’s forecast of 5%.”
WOEI CHEN HO, ECONOMIST, UOB, SINGAPORE
“I think (strong headline GDP) was mainly from the January to February boost, whereas the March data largely disappointed.
“Even the property investment contraction was worse than expected… there’s not much of an improvement in the outlook from here. I think there’s still downside risks to the economy. It’s pretty clear the property glut is still continuing.
“Cutting interest rates is not helping much. They have boosted liquidity in markets, but what is missing is the consumer confidence. People are not comfortable to be spending when the outlook is weak and also the property market is continuing to turn down – of course the government is trying to do more on the infrastructure side, but there is a limit to how much they can do.”
TONY SYCAMORE, MARKET ANALYST, IG, SYDNEY
“This will be a good number to support a continued rebound in Chinese equities.
“It seems like sentiment has turned, and I think this number is certainly going to make people think further about what they want to do with their China equity holdings… There are obviously political risks in holding those stocks, but when you just look at the numbers, the GDP number really impresses me.
“When you see a GDP beat like that, you can’t really ignore it, and I think that’s something that will be taken by the market as a ray of shining light.”
TORU NISHIHAMA, DAI-ICHI LIFE RESEARCH INSTITUTE, CHIEF ECONOMIST, TOKYO
“The GDP data made it clear that weak consumption and strong production could pave the way for the Chinese economy to slide deeper into deflation going forward.
“As long as China continues to depend heavily on the property market, particularly in rural regions, the real-estate market would keep a drag on the Chinese economy.
“Support for household consumption and job creation among the youth hold the key to a balanced growth, but right now it’s hard to see Chinese authorities are trying to shift focus towards those areas.”
JEFF NG, HEAD OF ASIA MACRO STRATEGY, SMBC, SINGAPORE
“The result is positive for the economy to hit its target. Momentum appears to be stable for now, evidenced by the March data not surprising on the upside.
“I think sentiments are still leaning bearish, I’m anticipating some reversal, possibly from the last quarter of 2024.”
ALVIN TAN, HEAD OF ASIA FX STRATEGY, RBC CAPITAL MARKETS, SINGAPORE
“On the face of it, the headline number looks good… but I think the momentum is actually quite weak at the end. It basically looks quite front-loaded, the strength in the economy. Front-loaded in the January-February point, which is basically the Chinese New Year, if you think about it. And essentially, it kind of weakened from there.”
BACKGROUND
* China’s economy has struggled to mount a strong and sustainable post-COVID bounce, burdened by a protracted property downturn, mounting local government debts and weak private-sector spending.
* The world’s second-biggest economy is expected to grow at a 4.6% pace in 2024 year-on-year, according to a Reuters poll, falling short of the official target of around 5.0%.
* China has unveiled fiscal and monetary policy measures in a bid to achieve what analysts have described as an ambitious 2024 growth target, noting that last year’s growth rate of 5.2% was likely flattered by a comparison with a COVID-hit 2022.
* The government is drawing on infrastructure work – a well-used playbook – to help lift the economy as consumers are wary of spending and businesses lack confidence to expand.
* Fitch cut its outlook on China’s sovereign credit rating to negative last week, citing risks to public finances as Beijing channels more spending towards infrastructure and high-tech manufacturing, amid a shift away from the property sector.
