Pedestrians cross a street in Shanghai, China, Tuesday February 28, 2023.
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China’s gross domestic product rose sharply in the first quarter while global peers face a slowdown in growth as central banks hike interest rates to tame inflation.
GDP grew 4.5% in the first quarter, China’s National Bureau of Statistics said on Tuesday. That’s the fastest growth since the first quarter of last year – when China’s economy grew 4.8% – and better than the 4% forecast in a Reuters poll. In a quarterly comparison, the economy grew by 2.2%.
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China’s growth took the spotlight as it reopened after lifting most of its tight Covid restrictions that had been in place for almost three years. The economy grew by 2.9% in the fourth quarter of 2022.
Retail sales rose 10.6% in March as online sales of physical goods picked up. Industrial production rose 3.9%, slightly less than Reuters forecast of 4%.
Year-to-date fixed investment was weaker than expected, up 5.1% yoy as infrastructure and manufacturing investment growth slowed. Real estate investment, meanwhile, continued to decline.
The economy grew 3% in 2022, less than Beijing’s official target of around 5.5% set in March last year. For 2023, the government set a modest growth target of “around 5%” last month.
On pace to surpass the goal
Goldman Sachs said China’s 4.5% growth in the first quarter supported the company’s full-year forecast that the economy would grow 6%.
“Today’s data is consistent with our optimistic forecast for China growth for the full year,” Hui Shan, Goldman Sachs’ China chief economist, told CNBC.
“That’s the nature of the rebound after the reopening [and] is the core of why we have our above consensus forecast of 6% growth for the full year,” she said.
While most analysts polled by Reuters do not expect a change in the central bank’s benchmark interest rate, some believe the People’s Bank of China could slightly lower its benchmark one-year lending rate if inflation in China slows further.
China’s consumer inflation hit an 18-month low earlier this month.
“Unequal is the right word to describe the current state of the economy, and confidence levels are also not as strong as the macro data suggests,” the Goldman economist said, adding that policymakers are likely to adopt a “pro-growth” approach. Attitude will be maintained order for collection.
“So policymakers are now trying to maintain a pro-growth stance to allow demand to gradually pick up on the back of lower interest rates,” she said.
China’s economy is likely to get another boost from government stimulus later in the year, Helen Zhu, executive director of NF Trinity, told CNBC’s Street Signs Asia shortly after the data was released.
“I think we’ll beat the 5 percent target for the second quarter and hopefully by the third quarter a lot of the policy stimulus would have come through,” she said.
She added that the latest reading is pushing back skeptics about China’s ability to meet its full-year 2023 growth target and is likely to prompt corresponding upward revisions to GDP forecasts.
“The numbers are undoubtedly a lot stronger than expected and I think it’s a really good start to the year,” she said.
Iris Pang, ING’s chief economist China, said she also expects the Chinese government to provide additional stimulus to boost infrastructure investment and consumption.
“In order to meet the 5% growth target for 2023, the government needs to accelerate infrastructure investments, most of which should concern building subway lines and increasing the number of 5G towers, as these are already planned for this year” , she wrote a note before the GDP report.
“We therefore assume that Q2 GDP will grow at a faster rate of 6.0% year-on-year. We keep the full-year GDP forecast at 5% as external demand should be a concern for the year,” Pang wrote.
services are recovering
The value of China’s services sector also rose 5.4% year-on-year in the first quarter as the economy ended its zero-Covid policy.
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The service production index rose 9.2%, government data showed, led by accommodation, food and information technology services in March.
But economists have warned that China’s economic recovery could take longer than expected – as companies like Citi push back their Hang Seng index target by three months.
– CNBC’s Evelyn Cheng contributed to this report.
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