It was recently announced that China’s economy advanced 5.3% annually in the first quarter of the year, a slight acceleration compared to the 5.2% rate of the 4Q23, and above the 4.6% expected by the consensus. Quarterly growth was 1.6% (vs. 1.2% in the 4Q23 and 1.4% expected). This result was driven in part by external demand, as export volume increased by 14% annually. However, as for the real estate sector, it continued to show a weak performance, after property investments declined by 9.5% annually in the 1Q24. The square footage of new commercial buildings sold fell 19.4% annually.
On the other hand, although the latest figures, corresponding to March, showed increases, they did not end up convincing, with industrial production advancing 4.5%, below the 6% estimate; while retail sales grew 3.1%, below the 4.6% forecast, and fixed asset investment grew 4.5% annually, slightly exceeding some expectations. Finally, the unemployment rate in major cities declined slightly to 5.2%, breaking a three-month streak of increases.
As can be seen, economic activity is showing divergent signals, with production growth stronger than consumption growth, and within fixed asset investment, real estate investment will continue to disappoint (mainly due to the problems faced by developers).
Under this mix of factors, the perspective that this economic performance would make the government comfortable with current policies is beginning to gain traction. Therefore, the impact of new stimulus (fiscal – monetary) would be reduced in the very short term, due to the pressure it could generate on banks and the additional pressure that the Yuan (CNY) could experience now that the Fed’s rate cuts could take longer than originally contemplated. However, the consensus baseline scenario still suggests that the economy could expand by 4.7% this year, which is in line with the government’s projection of “around 5%” growth.
China’s GDP growth
(Y/Y): Refers to annual growth
(Q/Q): Refers to quarterly growth
Source: Reuters