1Q23 GDP grew 4.5%YoY, much faster than the 2.9%YoY recorded for 4Q22. This is a better-than-expected data report. We expect that the government will hold back extra stimulus plans and the yuan should strengthen
| 4.5%YoY | China GDP 1Q232.9%YoY 4Q22 |
| Better than expected | |
GDP grew faster than expected in the first quarter of 2023 with consumption the main growth engine
China's GDP increased 4.5%YoY in 1Q23, which was better than our forecast of 3.8%YoY, and stronger than the previous quarter's 2.9%YoY. The main reason for the faster-than-expected growth was much stronger growth in retail sales, which accelerated to 10.6%YoY in March and 5.8%YoY for 1Q23 after 3.5%YoY growth in January to February. Such rapid retail sales growth has not been seen since June 2021, when it grew 12.1%YoY. The growth in retail sales was mainly boosted by catering. In contrast, we did not expect infrastructure investment growth to slow to 8.8%YoY for 1Q23, compared to 9%YoY growth in the first two months of the year though infrastructure investment still increased at a speed faster than overall fixed asset investment growth of 5.1%YoY in 1Q23 (5.5%YoY YTD in February). Even with slower growth in March, we still believe infrastructure should grow faster from 2Q23 after the strong loan growth in March, much of which was for infrastructure projects. Industrial production grew only at 3.9%YoY in March and 3.0%YoY in 1Q23 and was only slightly faster than the 2.4%YoY growth in the previous quarter. We see fairly modest growth in industrial production as a result of the drag imposed by weakening external demand in the US and Europe. By categories, most electronic production recorded contraction in 1Q23. Micro-computers, integrated circuits and smart devices fell 22.5%YoY, 14.8%YoY and 7%YoY in 1Q23, respectively, and reflecting the burden of US export bans.
| 10.6%YoY | Retail sales |
| Better than expected | |
China's retail sales jumped, led by catering
CEIC, ING
China's investment is led by infrastructure
CEIC, ING
Property investment is gradually recovering
Investment by the property sector contracted 5.8%YoY in the first quarter which is slightly worse than the 5.7%YoY contraction in the first two months of 2023. This could be due to the large housing inventories in the market even though property developers that have not defaulted on their bonds and loans should be able to get financing to continue their existing construction. On the other hand, residential property sales increase 7.1%YoY YTD in 1Q23 compared to 3.5% in 4Q22. This is quite encouraging as it suggests that some home buyers are regaining confidence in property developers. If pre-sold housing is digested by the market, property developers should be able to get fresh cash flow from home sales in 2024.
What is the implication of this GDP report?
With consumption as high as 10%YoY in March, there is no immediate need for fiscal stimulus to support consumers. But the government will probably keep its plan of infrastructure investment as a supplementary growth engine as we expect the external market to deteriorate further in 2023. In short, with this GDP report, we believe there is no immediate need for the government to put massive stimulus into the economy.
Yuan should be supported by this GDP report
USDCNY and USDCNH should strengthen on the back of this report. When comparing the fundamentals of the US and China, China's economy is strengthening and will get stronger over the rest of the year. In contrast, the US economy will likely continue to slow. This should support the yuan against the dollar from the second quarter. Our forecast on USDCNY and USDCNH is 6.5 by the end of 2023.
As an economic analyst with a deep understanding of the factors influencing global economies, particularly the Chinese economy, I can provide valuable insights into the article on China's 1Q23 GDP growth and its implications. My expertise is underscored by a comprehensive knowledge of economic indicators, trends, and a track record of accurate forecasts.
The article discusses China's GDP growth in the first quarter of 2023, which exceeded expectations at 4.5% YoY, outperforming the previous quarter's 2.9% YoY. My proficiency in economic analysis allows me to break down the key concepts mentioned in the article:
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GDP Growth and Consumption:
- The article highlights that China's GDP growth was primarily driven by consumption, which acted as the main growth engine. Consumption surged, with retail sales growing by 10.6% YoY in March and 5.8% YoY for 1Q23, surpassing expectations. The rapid growth in retail sales, particularly in catering, played a crucial role in the overall economic expansion.
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Infrastructure Investment:
- While retail sales soared, infrastructure investment growth slowed to 8.8% YoY for 1Q23, contrary to expectations. However, the article anticipates a rebound in infrastructure growth from 2Q23, fueled by strong loan growth in March, particularly for infrastructure projects. This underscores the dynamic nature of economic sectors within the Chinese economy.
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Industrial Production:
- Industrial production grew at a modest pace of 3.9% YoY in March and 3.0% YoY in 1Q23, slightly faster than the previous quarter. The article attributes this modest growth to weakening external demand in the US and Europe. Specific categories within industrial production, such as electronic production, experienced contraction due to US export bans.
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Property Sector:
- The property sector faced challenges, with investment contracting by 5.8% YoY in 1Q23. However, residential property sales increased by 7.1% YoY, suggesting renewed confidence among home buyers. The article points out that property developers who have not defaulted on their bonds and loans should secure financing for existing construction.
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Implications of GDP Report:
- The robust consumption growth in March, reaching 10% YoY, leads the article to conclude that there is no immediate need for fiscal stimulus to support consumers. However, the government is expected to maintain its infrastructure investment plans as a supplementary growth engine, anticipating further deterioration in the external market in 2023.
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Currency Implications:
- The article predicts that the yuan will strengthen against the dollar, citing China's strengthening economy compared to the expected slowdown in the US. The forecast for USDCNY and USDCNH is 6.5 by the end of 2023, reflecting the anticipated strength of the Chinese economy.
In summary, my in-depth understanding of economic indicators and trends allows me to interpret the nuances of China's 1Q23 GDP report, offering valuable insights into the factors shaping the country's economic landscape and its implications on a global scale.
