China’s gross domestic product (GDP) grew by 4.5% in the first quarter of 2023, according to government data released on Tuesday. The higher-than-expected rise in GDP is attributed to increased consumption and retail sales after the government abandoned the strict “zero-COVID” strategy. This marks the fastest growth in the past year and outpaced the 2.9% growth in the previous quarter.
The rebound in consumption was driven by the removal of harsh COVID-19 restrictions, as people flocked to shopping malls and restaurants. In March, total retail sales of consumer goods went up by 10.6% year on year and grew 7.1 percentage points compared to the first two months of the year. Analysts initially estimated the economic growth to be around 4%.
However, other economic indicators showed weaker growth, indicating an uneven recovery. Industrial production output, which measures activity in the manufacturing, mining, and utilities sectors, grew by 3.9% in March compared to the same time last year. Fixed-asset investment, in which China invests in infrastructure and other projects to drive growth, rose by 5.1% in the first three months of 2023 compared to the same period last year. The growth was down from 5.5% in the first two months of the year.
Investors are expected to scrutinize China’s first-quarter economic data for indicators of recovery following years of harsh lockdowns and a crackdown on industries such as technology and real estate. Earlier this year, China’s government set this year’s economic growth target at “around 5%.” Last year’s growth in the economy fell to 3%, hampered by anti-virus controls that caused snap lockdowns and kept millions at home, sometimes for weeks on end.
“The combination of a steady uptick in consumer confidence as well as the still-incomplete release of pent-up demand suggest to us that the consumer-led recovery still has room to run,” said Louise Loo, an economist at Oxford Economics in a note.
GDP is expected to accelerate on a year-on-year basis due to Shanghai’s COVID-19 lockdowns last year, which impacted the economy. Oxford Economic’s Loo said that growth is expected to slow in the second half of the year due to the fading of consumption momentum, the winding down of fiscal stimulus, and weaker incoming external demand.
“The fading of consumption momentum, the winding down of fiscal stimulus, and a weaker incoming external demand would put downward pressure on domestic growth in H2,” she said.
China’s central bank kept rates on its one-year policy loans unchanged on Monday, and last week vowed to step up support for the economy and maintain ample liquidity to support growth.
