May 23, 2022

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China's first-quarter GDP tops expectations, but weakness in March sharply raises forecast risks

China’s first-quarter GDP tops expectations, but weakness in March sharply raises forecast risks

  • China’s Q1 GDP +4.8% y/y, forecast risks rise sharply
  • Activity indicators for March are already showing increased pressure
  • Retail sales fell 3.5% in March versus -1.6% in the survey
  • The nationwide March unemployment rate is the highest since May 2020
  • Industrial output and investment exceed expectations

BEIJING, April 18 (Reuters) – China’s economy slowed in March as consumption, real estate and exports took a hit, sparking faster-than-expected first-quarter growth numbers and exacerbating expectations already weakened by COVID-19 restrictions and the Ukraine war.

Beijing’s biggest near-term challenge is tough new coronavirus rules at a time of rising geopolitical risks, intensifying supply and commodity cost pressures, leaving Chinese authorities on a tightrope as they try to stimulate growth without jeopardizing price stability.

Data from the National Bureau of Statistics on Monday showed that gross domestic product grew 4.8% in the first quarter of the previous year, topping analysts’ expectations for an increase of 4.4% and up from 4.0% in the fourth quarter.

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A surprisingly strong start in the first two months of the year improved the headline figures, with GDP rising 1.3% in the January-March period on a quarterly basis, compared to expectations for a 0.6% rise and a revised 1.5% gain in the same period. previous quarter.

Analysts say the April data is likely to be worse, with continued lockdowns in the Shanghai mall and elsewhere, leading some to warn of growing recession risks. Read more

“More impacts from the shutdowns are imminent, not only because of delays in the delivery of daily necessities, but also because they add uncertainty to services and factory operations that have already impacted the labor market,” said Iris Pang, president of Greater China. The Economist at ING.

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“We may need to revise our GDP forecast further if the fiscal support does not come in time.”

Chinese stocks tumbled, likely in reaction to March numbers and poor outlook – the CSI300 index of blue-chip companies (.CSI300) It fell 0.6% while the Shanghai Composite Index fell (.ssei) decreased 0.5%.

Retail sales decline, price action

March activity data showed retail sales contracted the most year-over-year since April 2020 due to COVID spread restrictions across the country. It fell 3.5%, worse than expectations of a 1.6% decline and a 6.7% increase in the January-February period.

The labor market is already showing signs of stress in March, a typically strong month for the labor market as factories resume hiring after the Lunar New Year holiday. China’s survey-based unemployment rate reached 5.8% in March, the highest level since May 2020, while the unemployment rate in 31 major cities was 6.0%.

The industrial sector held up better with production expanding 5.0% from a year earlier, compared to expectations for a 4.5% increase. This was still down from a 7.5% increase in the first two months of the year.

Investment in fixed assets, a growth engine that Beijing is counting on to prop up the economy, rose 9.3% year-on-year in the first quarter, compared with an expected 8.5% increase but down from 12.2% in the first two months.

Analysts at Capital Economics and Nomura believe that the official GDP numbers may have underestimated the slowdown in the last quarter.

Capital Economics says growth in its services production index for the first quarter is not in line with the services sector expansion in GDP data, while Nomura said some March data, such as industrial production, are difficult to reconcile with many other leading industry indicators. Activity.

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Home sales by value in March plunged 26.2% year-on-year, the largest decline since January and February 2020, according to Reuters calculations, indicating a deepening slowdown in the property market.

CURBS COVID-19 ‘Too Expensive’

The government’s determination to stem the spread of record COVID-19 cases has clogged highways and ports, stranded workers and closed countless factories — disruptions spreading across global supply chains for goods ranging from electric cars to iPhones.

The contribution of net exports to GDP growth declined to 3.7% in the first quarter from 26.4% in the fourth, underlining the loss of momentum in one of the key growth drivers.

Fu Linghui, a spokesman for the National Bureau of Statistics, acknowledged the mounting downward economic pressures.

“We will speed up the implementation of macroeconomic policies, do our best to stabilize economic fundamentals, and strive to achieve the year’s goals and tasks,” Fu told a press conference.

Late Friday, the People’s Bank of China (PBOC) announced it would cut the amount of cash that banks must hold as reserves for the first time this year, releasing about 530 billion yuan ($83.25 billion) of long-term liquidity, although The size of the pieces missed expectations. Read more

Analysts now see less scope for further rate cuts in China, after a lower-than-expected rate-to-reserve rate cut, which they say reflects the People’s Bank of China’s concern about inflation pressures and US monetary tightening. Read more

“The government is facing a dilemma: how to balance economic growth with containing the outbreak. Locking down big cities like Shanghai is too costly,” said Zhiwei Zhang, chief economist at Pinpoint Asset Management.

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These costs will become more apparent in the coming months.

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(Covering) Kevin Yao, Stella Keogh and Elaine Zhang – Editing by Shri Navaratnam

Our criteria: Thomson Reuters Trust Principles.