China’s first-quarter GDP beats forecasts, but March activity raises risks to outlook

  • China Q1 GDP +4.8% y/y, risks to outlook rising sharply
  • March activity indicators already show increasing stress
  • Retail sales contract 3.5% in March, from -1.6% in a survey
  • National unemployment rate in March highest since May 2020
  • Industrial production and investment beat forecasts

BEIJING, April 18 (Reuters) – China’s economic activity slowed in March as weak consumption, real estate and exports overshadowed faster-than-expected first-quarter GDP growth, raising hopes a worsening outlook as measures to combat COVID-19 and the war in Ukraine deteriorate. pay the toll.

The Ukraine crisis has complicated the work of policymakers as it has intensified supply and commodity price pressures, sharply inflating global inflation and leaving Chinese authorities walking a tightrope as they attempt to stimulate growth without jeopardizing price stability.

China’s gross domestic product (GDP) rose 4.8% in the first quarter from a year earlier, data from the National Bureau of Statistics showed on Monday, beating analysts’ expectations for a gain of 4, 4% and a recovery of 4.0% in the fourth quarter last year.

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A surprisingly strong start to the first two months of the year improved the numbers, with GDP up 1.3% in January-March quarter-on-quarter, compared to expectations of a 0.6% rise and a revised gain of 1.5% the previous quarter.

Still, heightened global risks from the war in Ukraine, broad COVID-19 lockdowns and a weak housing market are suffocating the world’s second-largest economy, and some economists say recession risks are rising. Read more

March activity data showed retail sales contracted last month on a year-over-year basis on widespread COVID curbs across the country. It fell 3.5%, worse than expected for a 1.6% decline and a 6.7% increase in January and February.

Final consumption accounted for 69.4% of China’s GDP growth in the first quarter, down from its 85.3% share in the fourth quarter of 2021, according to NBS data.

“Even though first quarter GDP growth is higher than fourth quarter growth of 4.0%, it is still far from China’s 5.5% annual growth target. March growth is seriously affected by the anti-virus curbs, reflected by the heavily service sector consumption,” said Wang Jun, chief economist at Zhongyuan Bank.

“The second quarter of this year will come under greater pressure, and how much of the economy falters will depend on whether China is able to make flexible adjustments to its anti-virus measures and offer greater support through its macro policy,” Wang said.

The industrial sector held up better than expected with production up 5.0% compared to the previous year, against forecast gains of 4.5%. That was still down from a 7.5% increase seen in the first two months of the year.

Capital investment rose 9.3% year-on-year in the first quarter, down from an 8.5% increase reported by the Reuters poll, but down from 12.2% growth in the first two month.

Home sales in value in March fell 26.17% year-on-year, the biggest drop since January-February 2020, according to Reuters calculations, indicating a deepening slowdown in the housing market.


Analysts say April’s data is likely to be worse, with shutdowns in the Shanghai Mall and elsewhere dragging on.

The labor market is already showing signs of stress. China’s national survey-based unemployment rate stood at 5.8% in March, the highest since May 2020, and up from 5.5% in February.

The government’s determination to stop the spread of record COVID-19 cases has clogged highways and ports, blocked workers and shuttered countless factories – disruptions that ripple through global supply chains for goods ranging from electric vehicles to iPhones.

Late Friday, the People’s Bank of China announced it would reduce the amount of cash banks must hold as reserves for the first time this year, freeing up about 530 billion yuan ($83.25 billion) of long-term cash. term to cushion a sharp slowdown in economic growth. Read more

The move was widely expected after the State Council, or cabinet, said on Wednesday that monetary policy tools – including cuts in banks’ required reserve ratios (RRRs) – should be used in a timely manner, although the magnitude of the reduction missed expectations.

“I see Chinese policymakers stepping up fiscal spending and further easing monetary policy. These moves could help GDP growth,” said Macro Sun, chief financial markets analyst at MUFG, adding that he expects to a rate cut of 10 basis points. soon on the LPR 1 year.

The government has unveiled other fiscal stimulus measures this year, including stepping up local bond issuance to finance infrastructure projects and cutting corporate taxes.

But analysts are unsure whether the rate cuts would do much to halt the short-term economic recession as factories and businesses struggle and consumers remain cautious about spending. More aggressive easing could also trigger capital outflows, putting further pressure on Chinese financial markets.

China has targeted slower economic growth of around 5.5% this year as headwinds gather, but some analysts say that now may be difficult to achieve without more aggressive stimulus.

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Reporting by Kevin Yao, Stella Qiu and Ellen Zhang Editing by Shri Navaratnam

Our standards: The Thomson Reuters Trust Principles.

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