China’s economy grew faster than expected in the first quarter, official data released on Tuesday by the country’s National Bureau of Statistics revealed, according to NBC News.
Gross domestic product (GDP) rose 5.3% from January to March year-on-year, faster than the 5.2% growth in the fourth quarter of 2023 and the 4.6% increase expected by economists. On a quarter-on-quarter basis, China’s GDP grew 1.6 % in the first quarter, compared with forecasts of 1.4% and revised fourth-quarter growth of 1.2%. Beijing has set a 2024 economic growth target of about 5%.
The growth was partly driven by external demand as exports rose 14% year-on-year, Zhiwei Zhang, president and chief economist at Pinpoint Asset Management, stated.
With the Fed rate cut probability declining, I think the chance of rate cut by [People’s Bank of China] is also diminishing.
He noted that the PBOC set the fixing rate of the Chinese yuan against the US dollar at 7.1028 on Tuesday, down from 7.0979 on Monday. This indicates that the government may be willing to tolerate more exchange rate flexibility. A weaker currency makes the country’s exports less expensive and more desirable.
Following the release of the data, the offshore yuan strengthened slightly before backtracking from its five-month high reached on Tuesday morning to trade at 7.2724 against the US dollar.
However, production in March rose 4.5% year-on-year, missing expectations of 6%. Retail sales grew by 3.1% year-on-year, below expectations of 4.6%.
The weaker-than-expected growth in industrial production in March was due to sluggish industrial capacity utilisation, while the slowdown in retail sales was “unsurprising,” stated Bruce Pang, chief economist and head of research for Greater China at investment management and real estate firm JLL.
“We expect the policy push of equipment investment, as well as product renewal and replacement could continue to provide a temporary boost to domestic demand and keep the annual GDP target of around 5% achievable.”
Last week, Morgan Stanley raised China’s real GDP forecast for 2024 to 4.8 per cent, up from a previous expectation of 4.2 per cent. The data showed that while China’s economy was growing faster than predicted, it was growing at an “unbalanced” pace, Pang noted.
Optimism will likely be tempered by muted domestic demand, which will serve as the major weak point.
