China: Economy records quickest expansion since Q2 2023 in the first quarter
GDP growth picked up to 5.3% year on year in the first quarter of 2024, above the 5.2% in the fourth quarter of last year and overshooting market expectations. Q1’s reading marked the strongest expansion since Q2 2023. On a seasonally-adjusted quarter-on-quarter basis, economic growth gathered traction, rising to 1.6% in Q1, compared to the previous quarter’s 1.2% increase. Less positively, indicators relating to the crucial property sector—such as floor space under construction, real estate investment and housing sales—remained deeply negative throughout Q1.
The services sector grew 5.0% annually in the first quarter, decelerating somewhat from the fourth quarter’s 5.3% increase. Meanwhile, the industrial sector gained steam, growing 6.0% in Q1 (Q4: +5.5% yoy). Agricultural sector growth fell to 3.3% in Q1, marking the worst result since Q1 2020 (Q4 2023: +4.2% yoy).
Data for March suggested a somewhat disappointing end to the quarter, with the year-on-year expansions in retail sales and industrial production coming in below market expectations.
Our panelists expect year-on-year GDP growth to slow from its Q1 level in Q2, and over 2024 as a whole the economy is seen slightly undershooting the government’s target of an “around 5%” expansion.
On the latest reading, DBS analysts said:
“We have upgraded our 2024 GDP growth forecast […] Outbound shipments have proven resilient due to continued robust demand from the US, aided by a weaker Chinese yuan. The upswing of the global tech product cycle was another big driver of the export recovery. Domestically, infrastructure and manufacturing investment accelerated thanks to proactive state initiatives, counteracting pressures from slowing property investment.”
On the prospect of further stimulus measures, UBS analysts said:
“We think the property market may not have bottomed and need additional measures to help it stabilize. However, those may only be triggered by worse economic data later and/or a more damaging credit event. Currently, with the stronger-than-expected Q1 growth, we think the authorities may be reluctant to roll out any additional supportive macro policies.”