Thought April 17, 2019 / 03:13 am UTC

China: Strong March Performance Propels Q1 Growth

By Jeff Ng

A strong set of March performances pushed China's Q1 growth to 6.4% y/y, unchanged from Q4 2018, with industrial production (8.5% y/y) expanding the most since 2014. We previously cautioned against taking the March numbers too seriously. The April figures will be pivotal for determining whether these numbers are sustainable.

China’s GDP growth held steady in Q1 from a quarter ago, surpassing the consensus expectation as well as our own. The performance was supported by secondary industries (manufacturing and construction), which saw growth rebound to 6.1% y/y from 5.8% in Q4 2018, alleviating softer growth in primary and tertiary industries. Tertiary (mostly services) sector growth eased to 7% y/y in Q1 from 7.6% previously.

Industrial production growth smashed expectations by around 2.5 percentage points, with manufacturing and mining leading the way. We note double-digit growth in machineries (15.2% y/y), telecommunications/computers (10.2%), metal products (14.6%) and railways/ships (13.6%). These sectors showed a broad-based improvement. 

Consumer goods and household electronics supported an improvement in retail sales (8.7% y/y in March), alleviating the continued contraction in motor vehicles (Figure 1). 

Fixed asset investment rallied (6.3% y/y YTD in March from 6.1% in February), helped by government stimulus. 

The rise in domestic growth enabled the surveyed jobless rate to drop marginally to 5.2% in March from 5.3% in the prior month. It was on an upward trend in recent months.

The results place upside risks to our forecast for China’s 2019 GDP growth at 6.3%. It also helps inject confidence in the market that economic growth will not tank sharply. However, we still believe that the April numbers will be critical for determining whether the March numbers are sustainable.

Figure 1: Economic Activity Recovered Post-Lunar New Year (% y/y)

Source: CEIC, Continuum Economics

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I, Jeff Ng, the lead analyst certify that the views expressed herein are mine and are clear, fair and not misleading at the time of publication. They have not been influenced by any relationship, either a personal relationship of mine or a relationship of the firm, to any entity described or referred to herein nor to any client of Continuum Economics nor has any inducement been received in relation to those views. I further certify that in the preparation and publication of this report I have at all times followed all relevant Continuum Economics compliance protocols including those reasonably seeking to prevent the receipt or misuse of material non-public information.