China’s better-than-expected economic data on Monday prompted questions from analysts who pointed to inconsistencies with alternative statistics that paint a grimmer picture of the economy.
Gross domestic product growth rose 4.8% in the first quarter from a year prior, the government announced Monday, picking up from a rate of 4% in the October-to-December period, and beating a consensus 4.2% rate among economists surveyed by Bloomberg. The overall acceleration in growth came despite a protracted property slump and a series of lockdowns in March that disrupted business operations and depressed consumption.
The official data in some cases diverged from other sources that have indicated big concerns for the economy, according to some economists. They also said a strong January and February may have buoyed weakness in March, and cautioned the numbers for April will likely be worse as the impact of restrictions in Shanghai and elsewhere come into focus.
China reports growing investment and falling output of construction materials
Here is what analysts have said about China’s first-quarter economic figures:
Jacqueline Rong, deputy chief China economist for China at BNP Paribas SA
“There’s a quite big gap between the real-estate resilience as shown in the data and on-the-ground feeling of the market,” she said. New-home sales fell 29% by value last month from a year earlier, according to Bloomberg calculations based on figures from China’s National Bureau of Statistics. That compared with a more than 50% decline reported by the 100 largest property developers.
Nonetheless, “the figures still reflect the severe situation faced by the economy,” she said. “For the market, the trend, rather than the margin, of the downturn may be the most important to watch to some extent.”
“I don’t see any signs for Covid Zero to be loosened in the short term, although some improvements may be made in areas that had seen severe impact on production and people’s livelihood,” she said.
Nomura Holdings Inc analysts led by Lu Ting
“We believe actual gross domestic product growth could be a lot weaker than the 4.8% official first-quarter data suggest, as the strong activity data of January and February seem inconsistent with some alternative data sources. And in March, the Chinese economy has been clearly tumbling,” the economists wrote in a note.
Output growth of major raw materials such as cement, steel products and crude steel had a “surprisingly broad, albeit marginal” improvement in March, yet the growth of power generation dropped notably, they added.
“Amid expansive lockdowns, logistics disruptions, the downward spiral in the property sector and slowing exports, we expect activity data to tumble in April,” they said. The economists see the risk of a contraction in the second quarter rising, and said there are “downside risks” to the bank’s annual GDP growth forecast of 4.3%.
Ding Shuang, chief economist for Greater China and North Asia at Standard Chartered Bank
“It is rather difficult to explain how the published figure can be so strong. It’s likely mainly benefited from the better-than-expected data in the first two months, which had a low comparison base last year,” he said. The accuracy of the first quarter figures are “not that important” though, he said, as the market is focused more on “what they mean for policy making.”
“Policymakers may look past the better-than-expected figures for the first quarter and focus on the sharp weakening in March, as well as the spike in the jobless rate,” he said. Stimulus will be enhanced in a more targeted manner, with a focus on containing Covid rather than simply adding liquidity because cash “would be of no use if people can’t move around,” he added.
Ding no longer expects a broad-based cut in the amount of cash lenders must keep in reserve this year. Liquidity releases may rely more on various relending programs, he said.
Logan Wright, director of China markets research at consultancy Rhodium Group:
“It’s hard to understand the case for an acceleration in growth,” he said. “Either a sudden surge in high-tech manufacturing investment or stronger consumption growth despite Covid restrictions was enough to completely offset the impact of a contracting property sector, and neither of those explanations appears very plausible.”
It’s not the first time this year that economists have questioned the official economic data – the surprisingly strong result in the first two months of this year prompted a number of economists to question the accuracy of the data. Those skeptical takes were then deleted from the internet.