Photo by Ling Tang on Unsplash
China's economy grew by 4.5% in the first quarter of 2023, beating analyst forecasts and marking its strongest growth in a year, as the end of strict COVID curbs lifted businesses and consumers out of pandemic disruptions. However, headwinds from a global slowdown point to a bumpy ride ahead. China's rebound has remained uneven as its investment-fueled growth of the past, now reliant on consumption, faces challenges. Consumption, services, and infrastructure spending have perked up, but factory output has lagged amid weak global growth. While slowing prices and surging bank savings are raising doubts about demand.
Chinese policymakers have pledged to step up support for the $18 trillion economy to keep a lid on unemployment, but they face limited room to manoeuvre as businesses grapple with debt risks, structural woes, and global recession worries. China's second-quarter growth could pick up sharply due to the year-ago low base effect. The government has set a modest GDP growth target of around 5% for this year, after badly missing the 2022 goal.
Separate data on March activity on Tuesday showed retail sales growth quickened to 10.6%, beating expectations and hitting near two-year highs. However, that was led by a low-base effect, and there are signs of caution among consumers. Factory output growth also sped up but was just below expectations. While China's exports unexpectedly surged in March, analysts cautioned the improvement partly reflects suppliers catching up with unfulfilled orders after COVID-19 disruptions.
China's infrastructure investment rose 8.8% in January-March year-on-year, outpacing a 5.1% rise in overall fixed-asset investment, while property investment fell 5.8%. The nation's central bank, which cut lenders' reserve requirement ratio in March, said last week it will maintain ample liquidity, and stabilize growth and jobs. The government, which has refrained from taking big steps to spur consumption, is still relying heavily on infrastructure spending to spur investment and economic growth.
While the economic recovery is well on track, the international environment is still complex and ever-changing, constraints from insufficient domestic demand are obvious, and the foundation for economic recovery is not solid, according to the National Bureau of Statistics (NBS) spokesperson Fu Linghui. Analysts polled by Reuters expect China's growth in 2023 to speed up to 5.4% from 3.0% last year. However, there are still some structural problems to be solved to support sustained recoveries, such as the unemployment rate, property investment, and confidence in the private sector.
Key Facts
- China's economy grew by 4.5% in Q1 2023, beating analyst forecasts and marking its strongest growth in a year.
- The end of strict COVID curbs lifted businesses and consumers out of pandemic disruptions, but headwinds from a global slowdown point to a bumpy ride ahead.
- Consumption, services, and infrastructure spending have perked up, but factory output has lagged amid weak global growth.
- Policymakers have pledged to step up support for the economy to keep a lid on unemployment, but face limited room to manoeuvre.
- China's rebound has remained uneven as its investment-fueled growth of the past, now reliant on consumption, faces challenges.
- China's second-quarter growth could pick up sharply due to the year-ago low base effect.
- The government has set a modest GDP growth target of around 5% for this year, after badly missing the 2022 goal.
- Separate data on March activity showed retail sales growth quickened to 10.6%, but there are signs of caution among consumers.
- China's infrastructure investment rose 8.8% in January-March year-on-year, outpacing a 5.1% rise in overall fixed-asset investment, while property investment fell 5.8%.
- The economic recovery is well on track, but the international environment is complex, and constraints from insufficient domestic demand are obvious, according to the NBS spokesperson.
Inputs from // Reuters, CNBC
