China’s economy grew more than expected in the first quarter
China’s economy grew more than expected in the first quarter of 2024, data released Tuesday showed, but disappointing household and industrial data suggested the government will struggle to meet annual targets.
In the first three months of the year, economic growth stood at an annualized rate of 5.3%, up one-tenth from the previous quarter, the Office for National Statistics (ONE) said on Tuesday.
“The national economy has maintained a good pace of recovery,” ONE said in a statement.
The first-quarter data also beat analysts consulted by Bloomberg, who had bet 4.8%.
Beijing has set an economic growth target of around 5% for 2024, although authorities have already admitted that achieving it “will not be easy.” Analysts say this is an ambitious goal given the challenges facing the world’s second-largest economy.
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This Tuesday’s data “deals a significant blow to market expectations,” Deng Weng, chief economist at Hang Seng Bank China, told AFP.
“Consumption and domestic investment (were) the main drag, while industry and infrastructure were the main drivers,” he added.
Problems in the property market continued to curb growth, with house prices falling and major developers such as Country Garden and Vanke experiencing declining revenues and struggling to pay off their debts.
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Land prices in China’s major cities continued to fall last month, according to official data.
At the same time, there is growing fear of a return to deflation, a phenomenon of prolonged decline in prices that discourages investment.
Derek Scissors, a senior partner at the American Enterprise Institute (AEI), warned that the “good news is over” with GDP data showing “obvious deflation.”
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It is emphasized that the growth rate of retail sales was lower than in the same period last year.
China recently spent six months in deflationary conditions, weighed down by weak domestic consumption. The Asian giant overcame this situation in February, but in March price growth was minimal (+0.1% year on year).
“There are two readings of this data set: either China’s surprising real GDP growth is unsustainable, or China’s surprising real GDP growth is spurious,” Scissors calculated.
While some sectors, such as services, are in good health, growth has been impacted by weak household and business confidence in the context of economic uncertainty that is affecting consumption.
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Both retail sales, a key measure of household consumption, and industrial production fell last month, official data showed.
Retail sales rose 3.1% year-on-year in March, well below the 5.5% in the first two months of the year.
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Industrial production, in turn, rose 4.5% in March, down from 7% in January and February, according to ONE.
In March, ratings agency Fitch downgraded its sovereign debt outlook to negative, warning of “growing risks to China’s public finances.”
Authorities have announced a series of measures and billions of dollars in government bonds to boost infrastructure spending and consumption, but many analysts believe more needs to be done.
On Tuesday, Beijing said government efforts to boost economic growth were “having an effect.”