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Published on 16/04/2021 11:49:02 AM | Source: Reuters

Expert View: China`s Q1 GDP grows at record pace as recovery speeds up

Posted in Expert Views| #China #World Market #GDP

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China's economic recovery quickened sharply in the first quarter from a coronavirus-induced slump earlier last year, propelled by stronger demand at home and abroad and continued government support for smaller firms.

Gross domestic product (GDP) jumped a record 18.3% in the first quarter from a year earlier, official data showed on Friday, slower than the 19% forecast by economists in a Reuters poll, and following 6.5% growth in the fourth quarter last year.

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KEY POINTS

* Q1 GDP +18.3% y/y (f'cast +19%, Q4 +6.5%)

* Q1 GDP +0.6% q/q s/adj (f'cast +1.5%, Q4 +3.2% revised)

* March industrial output +14.1% y/y (f'cast +17.2%, Jan-Feb +35.1%)

* March retail sales +34.2% y/y (f'cast +28%, Jan-Feb +33.8%)

* Jan-March fixed asset investment +25.6% y/y (f'cast +25.3%, Jan-Feb +35%)

* Jan-March property investment +25.6% y/y (Jan-Feb +38.3%)

MARKET REACTION

China's blue-chip index was down 0.5%, while the Shanghai SE Composite Index was flat.

COMMENTARY:

CARLOS CASANOVA, SENIOR ECONOMIST FOR ASIA, UNION BANCAIRE PRIVEE, HONG KONG

"GDP rebounded to 18.3% y/y in Q1-21, in line with our expectation of 18.0% but below the consensus forecast of 18.5%. Take the consensus figure with a grain of salt, as numbers were skewed to the upside following recent frothy forecasts by several sell-side research houses. The outcome was not a surprise in any direction, way or form.

"We expect GDP will slow to 6.1% y/y in Q2-21, and average 5.5% y/y in the remainder of 2021, below the official growth target of 6.0%. However, due to the large base effect in Q1-21, we expect that annualised growth will comfortably exceed the official target, coming in at 8.6%.

"In terms of the key risks to our outlook, we see three main ones - ongoing deleveraging efforts, a slow pace of vaccination and ongoing geopolitical risks. Domestic demand will take over from exports/manufacturing for the next leg of China's recovery. By default, this implies lower growth but of better quality."

EDWARD MOYA, SENIOR MARKET ANALYST, OANDA, NEW YORK

"A wrath of Chinese economic data mostly came in below expectations and that along with heavy global bond yields was enough to drag sentiment down. 

"It appears that the normalisation of policy is starting to show some slowness across industrial production and property investment. The March reading of industrial production disappointed with a worse-than-expected decline from 35.1% to 24.5%. 

"China's growth will trend lower going forward, but this mixed reading will likely prevent policymakers from tightening too quickly."

CHAOPING ZHU, GLOBAL MARKET STRATEGIST, J.P. MORGAN ASSET MANAGEMENT, SHANGHAI

"Looking forward, the trend of normalisation may continue for the rest of the year, and domestic consumption is expected to be the major growth driver. Further support from the global recovery is also expected, especially as the vaccination progress remains slow in many emerging market economies.

"In terms of policy response, the central bank and fiscal authorities are returning to a more neutral stance, although some selective measures might be continued in order to support the small and medium-sized enterprises.

"After the strong credit expansion in 1Q2020, domestic liquidity conditions are likely to become more balanced, and regulators might make further efforts to cool down the property market and control domestic leverage. Fiscal discipline might also be strengthened, leading to deceleration in local government financing and infrastructure investment."

JULIAN EVANS-PRITCHARD, SENIOR CHINA ECONOMIST, CAPITAL ECONOMICS, SINGAPORE

"GDP growth soared from 6.5% y/y in Q4 to 18.3% last quarter (the Bloomberg median was 18.5% and our forecast was 20.0%). This tells us little about the economy's current momentum, however, since it reflects a much weaker base for comparison from last year's COVID-19 downturn.

"Instead, it makes sense to focus on seasonally adjusted q/q changes. On this basis, growth was 0.6% in Q1, down from 2.6% in Q4. Our in-house measure, the China Activity Proxy (CAP), also points to activity levelling off last quarter. Our initial estimate, based on full data for January and February and partial data for March, is that the economy grew 0.4% q/q in Q1, down from 2.8% in Q4.

"All told, the momentum looks to have been broadly stable in March. But this was not enough to prevent a weaker Q1 following a slowdown around the turn of the year. The upshot is that with the economy already above its pre-virus trend and policy support being withdrawn, China's post-COVID rebound is levelling off. We expect q/q growth to remain modest during the rest of this year as the recent boom in construction and exports unwinds, pulling activity back towards trend."

LOUIS KUIJS, HEAD OF ASIA ECONOMICS, OXFORD ECONOMICS, HONG KONG

"Promisingly, the monthly indicators suggest that industrial production, consumption and investment all gained pace in March on a sequential basis, following the weakness in the first two months.

"We expect the economy to continue to gain momentum in Q2, with a rotation in terms of the drivers of growth compared to last year. 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, although a full rebound in household spending hinges on convincing vaccination and further improvements in labour market conditions.

"Despite the weak Q1 outcome we maintain our GDP growth forecast for 2021 at 8.9% for now, given the recovery in March, while acknowledging the downside risk. We expect around 5.4% growth in 2022."

MARCO SUN, CHIEF FINANCIAL MARKETS ANALYST, MUFG BANK, SHANGHAI

"China's Q1 started good, especially in retail sales, which was behind the economic recovery; going forward, the focus point would be how to continue the growth and manage the financial risk.

"Speaking of managing the financial risk, we are likely to see quantitative tightening via guidance on credit growth in Q2 and maybe longer."

LI WEI, SENIOR CHINA ECONOMIST, STANDARD CHARTERED, SHANGHAI

"(The data came in) slightly weaker than expected but growth remained solid and industrial performance became more balanced, with growth of consumer incomes and spending catching up.

"We expect growth to normalise to 7% in Q2."

BACKGROUND:

* China's economy has surprised many with the speed of its recovery from last year's coronavirus jolt, especially as policymakers have also had to navigate tense U.S.-China relations on trade and other fronts — GDP shrank 6.8% in Q1, 2020 for its first contraction since at least 1992 when official quarterly records started.

* Since then it has managed a remarkable rebound and at a quickening pace, thanks in part to stringent lockdown measures to contain the novel coronavirus, which first emerged in China in late 2019.

* The recovery has been led by export strength as factories raced to fill overseas orders and consumption steadily picked up despite sporadic COVID-19 cases in some cities.

* Analysts polled by Reuters expect the world's second-largest economy to grow 8.6% in 2021, quickening from the previous year's 2.3% pace to the strongest performance in a decade.

* Growth is then expected to moderate to 5.5% in 2022, reflecting global economic normalisation and China's long-term slowing economic trajectory due to structural and demographic changes.

* With the economy back on more solid footing, the People's Bank of China is turning its focus to cooling credit growth to help contain debt and financial risks, but it is treading cautiously to avoid derailing the recovery.

* Authorities are especially concerned about financial risks involving the country's overheated property market, and have asked banks to trim their loan books this year to guard against asset bubble.

* China has set an annual economic growth target at above 6% this year, below analysts' expectations, giving policymakers more room to cope with uncertainties.

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