China’s economy beat expectations in the first quarter, growing 4.8 percent year on year, government data showed on Monday, amid mounting fears of a sharp slowdown due to Beijing’s draconian “zero-COVID” policies and the Ukraine war.
The world’s second-largest economy had been forecast to grow 4.4 percent in the January-March period, according to a Reuters poll of economists, up from 4 percent in the last quarter of 2021. Gross domestic product (GDP) rose 1.3 percent over the period on a quarter-on-quarter basis.
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China’s industrial output increased 5.0 percent in March compared to a year earlier, while retail sales shrank 3.5 percent.
While boosting Beijing’s prospects of hitting its ambitious target of 5.5 percent growth in 2022, the stronger-than-expected figures only cover a small period of the continuing ultra-strict lockdown in Shanghai, where residents have faced food shortages and factories have suspended operations.
“The worst hasn’t been taken into account yet,” Carlos Casanova, senior economist for Asia at UBP in Hong Kong, told Al Jazeera.
“January-February activity was stronger than expected. Together with robust external demand, that helped to support manufacturing. However, we are able to see the impact of lockdown measures in March retail sales, which were contractionary. We expect to see subdued activity in April and May, which will drag on Q2 growth.”
Alicia García-Herrero, chief Asia Pacific economist at Natixis in Hong Kong, also raised questions about the accuracy of strong economic data in January and February.
“Excellent Jan/Feb data on fixed asset investment does not really match the poor electricity and cement data for January and February,” García-Herrero told Al Jazeera.
“In other words, I would say that the Q1 GDP offers a somewhat distorted picture of what is really happening on the ground.”
Although Chinese President Xi Jinping has ruled out any shift away from the so-called “dynamic zero-COVID” strategy, officials have sounded the alarm about growing risks to the economy as authorities continue to go all out to eliminate the virus.
Among China’s top 100 cities by economic size, 87 are under pandemic restrictions, with the intensity of controls on the rise, according to a recent analysis by investment research firm Gavekal.
Last week, Chinese Premier Li Keqiang stressed the need for a “sense of urgency” about the economy, his third such warning in a span of a week.
On Friday, the People’s Bank of China announced a cut to the reserve requirement ratio – the amount of deposits banks must hold in reserve – releasing about 530 billion yuan of liquidity into the economy, while keeping its benchmark interest rate on hold. Analysts expect further stimulus in the coming months, although there are divergent views about whether it will do much to boost growth.
“We expect a stronger macro policy response in the second quarter to shore up growth, but the impact will be limited in the context of restricted mobility,” Tommy Wu, lead China economist at Oxford Economics in Hong Kong, said in a note on Monday. “The effectiveness of policy stimulus will depend on whether mobility will still be restricted in a broad scale, so risks to the outlook remain skewed to the downside.
After reporting annual growth of 8.1 percent for 2021, Beijing in March unveiled a target of 5.5 percent growth for this year.
Many economists are sceptical China’s economy will reach the goal as continuing lockdowns and the war in Ukraine weigh on demand. In March, Chinese factories saw activity drop at the quickest pace in two years, while vehicle sales fell nearly 12 percent year on year.
“Five percent could still be achieved in case we see a rebound in consumption after June, especially given a slightly easier stance from PBOC and lower mortgage rates,” Casanova said. “However the worst months are still ahead of us.”