China growth beats forecasts as econ shows stability signs

US Dollar and China Yuan

US Dollar and China Yuan

China massive stimulus measures saw China report much higher than expected exports in March and unexpected growth in the country's manufacturing activity.

"There is no denying that China's economy ended the first quarter on a stronger note", Julian Evans-Pritchard, senior China economist at Capital Economics, wrote in a note. Industrial output surged 8.5% year-on-year in March and retail sales also jumped by 8.7% year-on-year. "Given slowing global economic growth and worldwide trade, increasing worldwide uncertainties and prominent domestic structural issues, the task of reform and development is arduous and downward pressure on the economy persists", said Mao. Fears that the recovery is temporary may continue amid weaker global demand and uncertainty about the course of trade talks with the U.S.

The International Monetary Foundation revised up its GDP forecast for China this year to 6.3 per cent, citing the expected impact of the government's economic stimulus programme.

Industrial production, for instance, expanded 8.5 per cent in March from a year earlier, the strongest growth since July 2014, against expectations of a 5.9 per cent gain.

For a slowing global economy - on display Wednesday with Germany's government cutting its 2019 growth estimate - China's stabilisation and the prospect of stimulus is a relief.

"We need more evidence to call a full-fledged recovery". "The People's Bank of China appears to be more cautious about further easing", said Raymond Yeung, an economist at ANZ bank.

Forecasters expect Chinese growth to bottom out and start to recover later this year. The reading easily beat analysts' estimates of 5.9 per cent and the 5.3 per cent seen in the first two months of the year.

Western analysts were expecting growth to hit 6.4 percent.

Consumer spending, factory activity and investment all accelerated in March from the month before, the National Bureau of Statistics reported. The two sides have exchanged tariffs on more than $360 billion in two-way trade, hurting manufacturers in China and farmers in the US.

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The nation's retail sales rose 8.7%, driven by strong demand for home appliances, furniture and building materials.

Real estate investment rose 11.8 per cent in the first three months, quickening slightly from the 11.6 per cent gain in the January-to-February.

Auto sales extended their decline in March, falling 4.4 per cent from a year earlier compared with a 2.8 per cent drop in the previous month.

China has rolled out many policies to support growth - the key is to implement them, Mao said. They expected a recovery past year but pushed back that time line after President Donald Trump hiked tariffs on Chinese imports over complaints about Beijing's technology ambitions. The government lowered its growth target for China this year to 6.0-6.5 per cent, having chalked up its slowest pace for nearly three decades in 2018.

"China's high frequency economic indicators [such as money supply and producer price inflation] confirm that growth is bottoming out", said ANZ Bank's China economics team.

China's financial sector, however, performed better than expected in the first quarter.

The central bank has already slashed banks' reserve requirement ratios (RRR) five times over the past year and is expected to ease policy further in coming quarters to spur lending and make borrowing costs more affordable.

However, the market reaction to the positive data may have been muted by concerns that Chinese policymakers may now decide to temper planned monetary stimulus, Naeem Aslam, chief market analyst at TF Global Markets, warned.

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