BEIJING, April 18 — China’s economy slowed in March as consumption, real estate and exports were hit hard, taking the shine off faster-than-expected first-quarter growth numbers and worsening an outlook already weakened by Covid-19 curbs and the Ukraine war.

The biggest near-term challenge for Beijing is the tough new coronavirus rules at a time of heightened geopolitical risks, which have intensified supply and commodity cost pressures, boosting global inflation and forcing Chinese authorities to walk a tight rope as they try to stimulate growth without endangering price stability.

Gross domestic product (GDP) expanded by 4.8 per cent in the first quarter from a year earlier, data from the National Bureau of Statistics showed on Monday, beating analysts’ expectations for a 4.4 per cent gain and picking up from 4.0 per cent in the fourth quarter.

A surprisingly strong start in the first two months of the year improved the headline figures, with GDP up 1.3 per cent in January-March in quarter-on-quarter terms, compared with expectations for a 0.6 per cent rise and a revised 1.5 per cent gain in the previous quarter.

Analysts say April data will likely be worse, with lockdowns in commercial centre Shanghai and elsewhere dragging on, prompting some to warn of rising recession risks. 

"Further impacts from lockdowns are imminent, not only because there has been a delay in the delivery of daily necessities, but also because they add uncertainty to services and factory operations that have already impacted the labour market,” said Iris Pang, Greater China chief economist at ING.

"Support from fiscal and monetary policy has not been enough to fully offset the damage to GDP created by the lockdowns. We may need to revise our GDP forecasts further if fiscal support does not come in time.”

Worsening retail sales, jobless rate

Data on March activity showed retail sales contracting the most on an annual basis since April 2020 on widespread Covid curbs across the country. They fell 3.5 per cent, worse than expectations for a 1.6 per cent decrease and an increase of 6.7 per cent in January-February.

The job market is already showing signs of stress in March, a usually robust month for labour market as factories resume hiring after the Lunar New Year holiday. China’s nationwide survey-based jobless rate stood at 5.8 per cent in March, the highest since May 2020, while that in 31 major cities hit a record 6.0 per cent.

The industrial sector held up better with production expanding 5.0 per cent from a year earlier, compared with forecasts for 4.5 per cent gain. That was still down from a 7.5 per cent increase seen in the first two months of the year.

Fixed asset investment, a driver of growth that Beijing is counting on to underpin the economy, increased 9.3 per cent year-on-year in the first quarter, compared with an expected 8.5 per cent increase but down from 12.2 per cent growth in the first two months.

Home sales by value in March slumped 26.2 per cent year-on-year, the biggest drop since January-February 2020, according to Reuters calculations, pointing to a deepening downturn in the property market.

Covid-19 curbs hitting hard

The government’s determination to stop the spread of record Covid-19 cases has clogged highways and ports, stranded workers and shut countless factories - disruptions that are rippling through global supply chains for goods ranging from electric vehicles to iPhones. 

"The government faces a dilemma: how to balance economic growth and containing the outbreaks. Locking down large cities like Shanghai is highly costly. Such costs will become more visible in coming months,” said Zhiwei Zhang, chief economist at Pinpoint Asset Management.

The contribution from net exports to GDP growth reduced to 3.7 per cent in the first quarter from 26.4 per cent in the fourth, underlining the loss of momentum in a key growth driver.

Fu Linghui, a NBS spokesman, acknowledged the rising downward economic pressures.

"We will step up the implementation of macro policies, make every effort to stabilise the economic fundamentals, and strive to achieve the targets and tasks for the year,” Fu told a press conference.

Late on Friday, the People’s Bank of China announced it would cut the amount of cash that banks must hold as reserves for the first time this year, releasing about 530 billion yuan (RM353 billion) in long-term liquidity, although the size of the cut missed expectations.

The government has unveiled more fiscal stimulus this year, including stepping up local bond issuance to fund infrastructure projects, and cutting taxes for businesses.

Some analysts expect more easing, such as cuts to banks’ RRRs and benchmark lending rates, to shore up growth as the current economic growth is still way below the target of around 5.5 per cent set by Beijing last month.

Julian Evans-Pritchard, senior China economist at Capital Economics, believe officials are taking a restrained approach to stimulus, noting the smaller-sized RRR reduction and lack of policy rate cuts.

"The upshot is that China’s economic performance is likely to remain lacklustre in the near-term.” — Reuters