The official national accounts show that China’s economy rebounded more strongly than expected following the relaxation of the government’s zero-Covid policy. In seasonally-adjusted, quarter-on-quarter terms, output expanded by 2.2% in the first quarter of 2023. While that was actually a bit less than the 2.5% increase that we had pencilled in, this was only due to revisions to the historical data.
These revisions meant that the economy grew by 0.6% in the fourth quarter of 2022 versus the initial estimate of zero growth. The solid increase in output in the first three months of 2023 meant that the annual rate of GDP growth accelerated to a faster-than-expected 4.5%, from 2.9% in Q4 2022.
We previously argued that China’s recovery was likely to be uneven and unlikely to save the world, with the rebound driven by services and some pick-up in housing activity while manufacturing lagged behind. That appears to have been borne out in the monthly activity data, which were published for March 2023 alongside the Q1 national accounts.
Those figures show that growth in retail sales surprised to the upside, accelerating to 10.6% year-on-year in March 2023, from 3.5% across January and February in the same year. By contrast, growth of 5.1% year-to-date in fixed asset investment fell short of expectations as some rebound in housing was offset by softer infrastructure and manufacturing activity expenditure while industrial production growth of 3.9% underperformed.
Looking ahead, we expect the solid start to 2023 to be sustained for a while longer. Leading indicators have long been pointing to a cyclical recovery in China’s economy into Q3 2023, which should be boosted by some further release of pent-up demand as unemployment falls and confidence recovers. This, coupled with powerful base effects stemming from lockdowns in 2022, mean that China is likely to register some very strong growth figures in the second quarter of 2023.
Our forecast for the economy to grow by 6.2% in 2023 is at the very top of the consensus and, if anything, the risks to our relatively optimistic view are probably to the upside.
The contents of this document may not be reproduced or distributed in any manner without prior permission.
This document is intended to be for information purposes only and it is not intended as promotional material in any respect nor is it to be construed as any solicitation and offering to buy or sell any investment products. The views and opinions contained herein are those of the author(s), and do not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds. The material is not intended to provide, and should not be relied on for investment advice or recommendation. Any security(ies) mentioned above is for illustrative purpose only, not a recommendation to invest or divest. Opinions stated are valid as of the date of this document and are subject to change without notice. Information herein and information from third party are believed to be reliable, but Schroder Investment Management (Hong Kong) Limited does not warrant its completeness or accuracy.
Investment involves risks. Past performance and any forecasts are not necessarily a guide to future or likely performance. You should remember that the value of investments can go down as well as up and is not guaranteed. You may not get back the full amount invested. Derivatives carry a high degree of risk. Exchange rate changes may cause the value of the overseas investments to rise or fall. If investment returns are not denominated in HKD/USD, US/HK dollar-based investors are exposed to exchange rate fluctuations. Please refer to the relevant offering document including the risk factors for further details.
This material has not been reviewed by the SFC. Issued by Schroder Investment Management (Hong Kong) Limited.