Chinese economic recovery on track as Q1 GDP beats estimates

By Ambar Warrick

Investing.com -- China’s economy grew more than expected in the first quarter of 2023, data showed on Tuesday, indicating that a recovery was largely on track after the country relaxed most anti-COVID restrictions at the beginning of the year.

China’s first quarter GDP grew 4.5 on an annual basis in the first three months of 2023, more than expectations of 4% and 2022’s growth of 3%. GDP grew 2.2% from the prior quarter, in line with expectations. 

The reading comes as the relaxing of anti-COVID measures triggered a sharp rebound in business activity and spending, with pent-up demand greatly benefiting the service industry.

A recovery was also helped by a slew of stimulus measures by the government, as it moves to fish the economy out of a pandemic-driven slump. 

Beijing softened its rhetoric against the country’s internet giants, and loosened curbs on the country’s massive property structure in a bid to shore up growth. The property sector, which accounts for a quarter of the Chinese economy, was grappling with a prolonged cash crunch due to strict rules on fundraising. 

But a recovery so far has still remained largely uneven. While service sector demand and infrastructure spending have recovered from pandemic-era lows, sluggish inflation and shrinking imports indicate that demand remains weak. 

Chinese manufacturing - a bellwether for the Asian economy - is also struggling to recover from a COVID lull, and has also come under pressure from sluggish overseas demand for Chinese goods.

Other economic data released on Tuesday furthered this notion. Industrial production grew slightly less than expected in March, missing estimates for a second consecutive month. Production rose 3.9%, compared to estimates for growth of 4%. 

But retail sales blew past expectations, surging 10.6% in March against estimates for growth of 7.4%. The reading showed that consumer spending was steadily picking up after three years of COVID disruptions.

China’s unemployment rate also fell more than expected to 5.3% in March.

Despite signs of an uneven recovery, Tuesday's reading still indicates that a Chinese economic rebound is on track this year, although the government's 5% annual GDP target is seen as somewhat conservative.

Still, signs of a Chinese recovery bode well for broader Asian economies that depend on the country as a trading destination. Commodity markets also took support from the strong GDP reading.