Hong Kong
CNN
—
China’s economy is off to a strong start in 2023 as consumers embark on a spending spree after ending three years of strict pandemic restrictions.
Gross domestic product (GDP) grew 4.5 percent in the first quarter from a year earlier, the National Bureau of Statistics showed on Tuesday, beating the 4 percent estimate by economists polled by Reuters.
But private investment has barely budged and youth unemployment has reached the second highest level on record, indicating that the country’s private sector employers are still wary of growth. longer term outlook.
Consumption saw the strongest rebound. Retail sales jumped 10.6% in March from a year earlier, the highest level of growth since June 2021. In the months from January to March, retail sales increased by 5.8%, mainly due to higher revenues from the food services sector.
“The combination of steadily rising consumer confidence and the still incomplete release of pent-up demand suggests to us that the consumer-led recovery still has room to grow,” said Louise Loo, chief China economist at Oxford Economics.
Industrial production has also seen a steady increase. China’s GDP grew 3.9% in March, up from 2.4% in the January-February period. (China typically combines its economic data for January and February to account for the impact of the Lunar New Year holiday.)
Last year, GDP increased by just 3%, far from the official growth target of “around 5.5%,” as Beijing’s approach to stamping out the coronavirus has wreaked havoc on supply chains and dented consumer spending.
After mass protests rocked the country and local governments struggled to pay huge Covid bills, authorities finally abandoned the “zero Covid” policy in December. After a brief period of disruption due to a resurgence of Covid, the economy has started to show signs of recovery.
Last month, an official gauge of non-manufacturing activity hit its highest level in more than a decade, suggesting the country’s crucial services sector was benefiting from a resurgence in consumer spending after pandemic restrictions ended.
As the economic recovery gathers pace, investment banks and international organizations have raised their growth forecasts for China this year. In its World Economic Outlook released last week, the International Monetary Fund said China is “rebounding strongly” after reopening its economy. The country’s GDP will grow 5.2% this year and 5.1% in 2024, the fund forecasts.
However, some analysts believe that the strong growth recorded in the first quarter is the product of a “carryover” of economic activity from the fourth quarter of 2022, which was weighed down by pandemic-related restrictions and then a chaotic reopening.
“Our fundamental view is that the Chinese economy is deflationary,” Raymond Yeung, chief Greater China economist at ANZ Research, said in a research report released Tuesday.
If adjustments are made to take into account the impact of lagging economic activity, first-quarter GDP growth could have been just 2.6%, he said.
Several key data released on Tuesday support this hypothesis. For example, private investment has been extremely weak.
Private sector fixed investment increased by only 0.6% from January to March, reflecting a lack of confidence among entrepreneurs. (Public investment, meanwhile, increased by 10%). This is even worse than the 0.8% growth recorded in the January-February period.
The Chinese government has taken surprising measures to restore confidence among private entrepreneurs, but the campaign has generated more nervousness than optimism.
The real estate sector, which plays a crucial role, is also experiencing a deep slowdown. Real estate investments fell by 5.8% in the first quarter. Real estate sales by area fell by 1.8%.
“The domestic economy is recovering well, but constraints from insufficient demand are still evident,” NBS spokesperson Fu Linghui said at a press conference in Beijing on Tuesday. “Prices of industrial products continue to fall, and companies are facing many difficulties in terms of profitability.”
Unemployment continues to rise among young people.
The unemployment rate for 16-24 year-olds reached 19.6% in March, up for the third consecutive month. This is the second highest level on record, just behind the 19.9% level reached in July 2022.
The high youth unemployment rate suggests a “slowdown in the economy,” Yeung said.
“By June, a new wave of graduates will be looking for jobs. The unemployment situation could worsen further if China’s economic momentum weakens,” he added.
China’s Ministry of Education previously estimated that a record 11.6 million college graduates will seek jobs this year.
At last month’s meeting of the National People’s Assembly, the country’s parliament, the government outlined a cautious growth plan for this year, with a GDP target of around 5 percent and a job creation goal of 12 million.
