Retail sales beat expectations, rising 34.2% from year ago
Economy’s momentum slowed slightly from previous quarter
China’s economy soared in the first quarter as consumer spending strengthened, suggesting a more balanced recovery after an investment and export-fueled rebound from last year’s coronavirus lockdowns.
Gross domestic product climbed a record 18.3% in the first quarter from a year earlier, largely in line with the 18.5% predicted in a Bloomberg survey of economists. The figures are skewed by comparisons from a year ago when the economy was shut to curb the coronavirus outbreak. Retail sales beat expectations while industrial output moderated.
Slump and Rebound
Expected surge in growth is the mirror image of the slump last year
China’s economy steadily picked up pace after an historic contraction in the first quarter of last year, recovering all its lost ground by the end of September. The rebound has been led by strong industrial output and robust exports as the pandemic fueled demand for Chinese-made medical goods and electronic devices. Consumer spending had lagged, but the latest figures show a marked improvement in sentiment.
“We are seeing a bit more balanced recovery in the Chinese economy,” Wang Tao, chief China economist at UBS AG, said in an interview with Bloomberg TV. As monetary and fiscal policy starts to normalize, property and infrastructure investment are set to slow in the next few quarters, she said. “That early pickup in construction industry is going to give way to more household consumption,” she added.
On a quarter-on-quarter basis, which gives a better reading of the economy’s momentum, GDP growth slowed to 0.6% from an upwardly revised 3.2% in the previous three months. Wang said that was largely due to new virus cases at the beginning of the year and subsequent travel restrictions over the Lunar New Year holiday, as well as the lack of additional fiscal stimulus.
Bumper GDP growth, rising inflation and soaring debt levels have put policy makers on guard. Beijing has signaled it wants to scale back fiscal and monetary stimulus now that the recovery is gathering pace, and is tightening regulatory oversight in areas such as lending and real estate. Separate figures released by the statistics bureau Friday showed home prices grew at the fastest pace in seven months in March.The benchmark CSI 300 Index pared an earlier loss of as much as 0.6%. China’s 10-year government bond futures also reversed earlier losses to rise as much as 0.1% while the yield on benchmark 10-year sovereign debt fell one basis point to 3.165%. The onshore yuan lost 0.17%, the first drop this week, to 6.5329 per dollar.
What Bloomberg Economics Says...
The undershoot in GDP growth relative to expectations and lopsided nature of the recovery do not warrant any economy-wide shift in monetary policy, in our view.
Looking forward, production is poised to start peaking, while demand should pick up further. This should add more balance in what looks to be a steady recovery ahead.
Chang Shu, chief Asia economist
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The central bank has asked banks to curtail loan growth in coming months as it seeks to rein in credit. Officials have stressed a gradual tapering though, and economists don’t expect any interest rate hikes soon. The statistics bureau said Friday inflation is expected to remain in a moderate range this year, and while rising commodity costs could boost domestic prices, there’s no basis for prices in upstream sectors to rise significantly.
“The economy is far from overheating,” said Bruce Pang, head of macro and strategy research at China Renaissance Securities Hong Kong Ltd. The improvement in consumption was partly driven by pent-up demand due to travel restrictions in January and February, and the economic recovery still remains uneven, he said. “The consumer sector doesn’t have a solid basis for overheating, and I don’t think the central bank will take a faster turn for monetary policy.”
Globally, the rollout of vaccines is helping to bolster the world economy and underpinning China’s growth. On top of that, the Biden administration’s massive fiscal stimulus is expected to have huge spillovers for the rest of the world, especially in China, the world’s biggest exporter.
Bloomberg Economics’ Chang Shu earlier this week upgraded her GDP growth forecast for China for this year to 9.3%, from 8.2% previously. ING Groep NV economist Iris Pang raised her projection to 8.6% from 7% based on the latest GDP results. The government’s official target is for growth above 6% this year.
“We expect the economy to continue to gain momentum in the second quarter, with a rotation in terms of the drivers of growth compared to last year,” said Louis Kuijs, head of Asia Economics at Oxford Economics Ltd. in Hong Kong. “Less generous fiscal and monetary policy will weigh on infrastructure and real estate investment, while improved profitability and confidence should buoy corporate investment and consumption.”
— With assistance by James Mayger, Lin Zhu, Lianting Tu, Livia Yap, Catherine Ngai, Yujing Liu, and Yinan Zhao
(Updates with additional details and comments.)