GDP growth in China beats forecasts

China's economy grew faster-than-expected in the first quarter, but official data showed a recent slowdown in consumer activity as the country's growth prospects were clouded by sweeping Covid-19 lockdowns.

China's gross domestic product rose 4.8 percent year-on-year after growing 4 percent in the last three months of 2021. Compared to the previous quarter, GDP grew by 1.3 percent.

Analysts had expected growth of 4.4 percent year-on-year and 0.6 percent qoq as Covid outbreaks have intensified, prompting authorities to largely lock down Shanghai, the country's financial hub.

Retail sales, a gauge of consumer spending, fell 3.5 percent in March - the first year-on-year decline since July 2020 and worse than the forecast 1.6 percent - as authorities tightened restrictions to deal with the worst of the coronavirus outbreak counteracting in the country for more than two years. In the same month, the official unemployment rate rose to 5.8 percent, its highest level since May 2020.

The data will increase pressure on President Xi Jinping's government, which has maintained its commitment to a zero-Covid policy despite rising costs and which has reinforced disruptions in the country's largest cities.

The lockdowns came at a precarious time for China's economy, which has been hit by a debt crisis in the property sector and a general loss of momentum. The government is targeting growth of 5.5 percent for 2022, the lowest in three decades.

Fu Linghui, a spokesman for the National Bureau of Statistics, said that "the economy is generally stable," but cited "frequent outbreaks" of Covid in China and an "increasingly serious and complex international environment."

"The country is facing recurring waves of the pandemic in many places and the impact on the economy is increasing," he said.

Data for the first three months will not capture the full extent of recent events in Shanghai, which has been hit by China's most severe city-wide lockdown since the outbreak of the coronavirus in Wuhan since late March. Analysts at Nomura last week estimated that 45 cities, which account for about 40 percent of China's GDP, were in full or partial lockdown and said the country was at risk of recession."

Tommy Wu, senior China economist at Oxford Economics, said the 4.8 percent increase in GDP "mainly reflects the growth seen in official data for January and February, before economic activity slowed in March,"

adding: "The central government is now trying to strike a balance between minimizing disruption and controlling the recent wave of Covid infections, but disruption is likely to continue for weeks, weighing on activity in April and into May, if not longer. "

Contrasting the sudden weakness in consumer spending, industrial production, a key driver of China's initial recovery from de r pandemic in 2020 was up 5 percent in March compared to the previous year. Fixed investment increased by 9.3 percent in the first three months of 2022 compared to the same period last year.

Even before the outbreak of the highly contagious Omicron variant, China's economy was being hit by a real estate crisis, centered on the debt-ridden construction company Evergrande, which spread to the entire real estate sector.

A sign of the ongoing impact of this crisis was the 20% drop in housing starts in the first three months of the year. Steel and cement production fell by 6 and 12 percent, respectively, over the same period.

Not only has the government lowered its annual growth target, but it has also eased monetary policy, cutting key lending rates for the first time since 2020, despite earlier attempts to reduce debt.

The People's Bank of China on Friday cut the reserve ratio for banks by 25 basis points to inject liquidity into the financial system.

Xi, who is seeking an unprecedented third term this year, has launched a "shared prosperity" campaign to reduce inequality. But the lockdown measures are now dominating the country's economic trajectory and have fueled fears of supply chain disruptions.

Chinese Premier Li Keqiang has repeatedly warned of the economic risks in recent weeks after Xi warned in March that the economic impact of Covid policies needed to be minimized.

The CSI 300 index of stocks listed in Shanghai and Shenzhen fell about 1 percent on Monday after the data was released. Banks were among the worst performers as lenders faced the prospect that policy easing to cushion the economic impact of the shutdowns could hurt profits.

"We definitely believe Chinese policymakers are ready to ensure they meet their growth targets," said Jean-Charles Sambor of BNP Paribas Asset Management.