China’s economy got off to a solid start in 2023 as consumers went on a spending spree after three years of tight pandemic restrictions.
The gross domestic product grew by 4.5% in the first quarter compared to a year ago, according to the National Statistics Office on Tuesday. That beat the estimate of 4 percent growth in a Reuters poll of economists.
But private investment barely budged and youth unemployment rose to the second-highest level on record, indicating the country’s private sector employers are still wary. long-term prospects.
Consumption recorded the strongest rebound. Retail sales rose 10.6% in March from a year earlier, the highest level of growth since June 2021. Between January and March, retail sales grew 5.8 %, mainly thanks to the increase in income from the catering services industry.
“The combination of a steady increase in consumer confidence as well as the still incomplete release of pent-up demand suggests to us that the consumer-led recovery still has room to run,” said Louise Loo, China’s chief economist of Oxford Economics.
Industrial production also showed a steady increase. It rose 3.9% in March, compared with 2.4% in the January-February period. (China usually combines its January and February economic data to account for the impact of the Lunar New Year holiday.)
Last year, GDP increased not more 3%, missing the official growth target of “around 5.5%” as Beijing’s approach to stamp out the coronavirus wreaked havoc on supply chains and hit consumer spending.
After mass street protests gripped the country and local governments ran out of cash to pay huge Covid bills, authorities finally scrapped the zero-Covid policy in December. After a brief period of disruption due to a surge in Covid, the economy has started to show signs of recovery.
Last month, an official gauge of non-manufacturing activity jumped to its highest level in more than a decade, suggesting the country’s crucial services sector was benefiting from a resurgence in consumer spending after the end of pandemic restrictions.
As the economic recovery gains momentum, investment banks and international organizations have upgraded China’s growth forecasts for this year. In its World Economic Outlook released last week, the International Monetary Fund said China is “recovering strongly” after the reopening of its economy. The country’s GDP will grow by 5.2% this year and 5.1% in 2024, he forecast.
However, some analysts believe that the strong growth reported in the first quarter was the product of the “backloading” of economic activity from the fourth quarter of 2022, which was weighed down by pandemic restrictions and then a chaotic reopening
“Our main view is that China’s economy is deflationary,” Raymond Yeung, chief economist for Greater China at ANZ Research, said in a research note on Tuesday.
If adjustments are made for the impact of lagging economic activity, GDP growth in the first quarter could have been just 2.6%, he said.
Some key data released Tuesday support that idea. For example, private investment was extremely weak.
Private sector fixed asset investment rose just 0.6% from January to March, indicating a lack of confidence among entrepreneurs. (State investment, on the other hand, advanced by 10%). This is even worse than the 0.8% growth recorded in the January to February period.
The Chinese government has resorted to surprising measures to restore confidence among private entrepreneurs, but the campaign has inspired more nervousness than optimism.
The major real estate industry is also mired in a deep recession. Real estate investment fell by 5.8% in the first quarter. Property sales by surface decreased by 1.8%.
“The domestic economy is recovering well, but the constraints of insufficient demand are still evident,” Fu Linghui, a spokesman for the NBS, told a news conference in Beijing on Tuesday. “The prices of industrial products continue to fall and companies face many difficulties in their profitability.”
Unemployment continued to rise among the youth
The unemployment rate for young people aged 16 to 24 reached 19.6% in March, for the third consecutive month. It was the second highest on record, trailing only the 19.9% level reached in July 2022.
The high youth unemployment rate suggests “a lack of economy,” Yeung said.
“In June there will be a new group of graduates looking for work. The unemployment situation could worsen further if China’s economic momentum falters,” he added.
China’s education ministry has previously estimated that a record 11.6 million university graduates will look for work this year.
At last month’s meeting of the National People’s Assembly, the country’s rubber-stamp parliament, the government set out a cautious growth plan for this year, with a GDP target of around 5% and a target of job creation of 12 million.