China: Economic growth off to a solid start in 2018
China’s economy started 2018 on strong footing, continuing to defy concerns of a potential slowdown, likely thanks to robust private consumption. GDP expanded 6.8% in annual terms in Q1, matching Q4’s performance and coming in above the 6.7% expansion market analysts had penciled in. Q1’s print was also well above the government’s target of 6.5% economic growth for 2018.
Although the National Bureau of Statistics (NBS) does not provide a breakdown of GDP by expenditure, additional data suggests consumption helped drive growth in the first quarter of 2018. Nominal retail sales were solid, buttressed by buoyant consumer confidence, higher disposable incomes and a tight labor market. Investment also likely contributed to growth; despite decelerating from the same quarter a year earlier, investment in fixed assets remained solid. The external sector, however, lost some steam in the first quarter compared to Q4, with the trade surplus narrowing to a four-year low. Nominal exports of goods accelerated in Q1, reflecting healthy global demand, particularly from the ASEAN region, the European Union and the U.S. Q1’s healthy performance in export growth was offset by surging nominal merchandise imports of goods due to resilient domestic dynamics in the country.
From a supply perspective, growth was mainly driven by an acceleration in industrial activities, boosted by a relaxation in pollution controls. Services and the primary sector appeared to have slowed in Q1, but services growth remained elevated.
Sequential data shows that GDP in Q1 adjusted for seasonal factors increased 1.4%, down from the 1.6% expansion recorded in Q4.
Q1 data reveals China has made headway on its economic model rebalancing, as private consumption and services appeared to contribute significantly to growth, alongside investment and manufacturing. An economic slowdown could still be in the cards for China amid a cooling property sector, and downside risks to growth of trade protectionism and tighter financial regulation amid financial deleveraging.