Chinese GDP beats estimates in first quarter, but March activity highlights risks to the outlook

Chinese GDP beats estimates in first quarter, but March activity highlights risks to the outlook

The Chinese economy grew faster than expected in the first quarter, according to data published on Monday, expanding by 4.8% year-on-year, but the risk of a sharp slowdown in the coming months has increased as that the extensive restrictions applied by COVID -19 and the war in Ukraine take a heavy toll.

The decline in activity was evident in the indicators for March, which showed a strong blow to demand and suggest hard work ahead.

According to a Reuters poll of analysts, the Gross Domestic Product ( GDP ) for January-March was expected to grow 4.4% from a year earlier, compared to 4.0% in the fourth quarter of last year.

In quarter-on-quarter terms, GDP grew by 1.3% in January-March, versus expectations of a 0.6% increase and a revised 1.5% increase in the previous quarter.

Rising global risks from the war in Ukraine, COVID -19 lockdowns and a weak real estate market are stifling the world’s second-largest economy, with some economists saying recession risks are rising.

Separate data on activity for March showed retail sales slumped last month on a year-over-year basis due to COVID restrictions in the country. They fell 3.5%, well below expectations for a 1.6% decline and 6.7% rise in January and February.

The industrial sector held up better than expected, with output rising 5.0% from a year earlier, versus forecasts for a 4.5% increase. However, this figure is lower than the 7.5% increase recorded in the first two months of the year.

Fixed asset investment rose 9.3% year-on-year in the first quarter, compared with the 8.5% increase forecast by the Reuters survey, but lower than the 12.2% growth in the first two months.

Analysts say April’s data is likely to be worse as lockdowns in Shanghai and elsewhere drag on.

The labor market is already showing signs of strain. The unemployment rate according to national surveys stood at 5.8% in March, the highest since May 2020, and higher than the 5.5% in February.

The government’s decision to stop the spread of COVID – 19 has congested roads and ports, stranded workers and closed countless factories, disruptions that ripple through global supply chains for goods ranging from electric vehicles to iPhone phones.

Late on 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 some 530 billion yuan ($83.25 billion) of long-term liquidity to buffer a sharp slowdown in economic growth.

The move was largely expected after the State Council, or cabinet, said on Wednesday that monetary policy toolsincluding cuts in banks’ reserve requirement ratiosshould be used in a timely manner.

The government has announced more fiscal stimulus this year, such as increasing local bond issuance to finance infrastructure projects and cutting corporate taxes.

However, analysts are not sure that interest rate cuts will help stem the economy’s slide in the short term, as factories and businesses struggle and consumers remain cautious about to spend. A looser monetary policy 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 build, but some analysts say it may now be difficult to achieve without more aggressive stimulus measures.

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