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