China’s economy grew at a faster pace than expected at the start of year as benefits from government stimulus measures appeared to filter through and trade negotiations with the US entered a key stage.
The world’s second biggest economy managed annualized growth of 6.4 per cent in the first quarter, the same pace of growth seen in the last three months of 2018, but below the 6.8 per cent growth seen last year.
The moderately upbeat figures – ahead of analysts’ expectations of 6.3 per cent – follow Donald Trump’s decision not to raise tariffs in March and are in contrast to gloomy data at the start of the year.
China’s economy: Growth came in higher than expected but some analysts remained skeptical
Growth was supported by a jump in industrial production, which rose by 8.5 per cent – its fastest pace in more than four and half years – a rebound in exports and rising investment.
Analysts have indeed warned it is too early to talk about a turnaround in the Chinese economy though, which has been slowing down. China’s imports have been falling, which suggests that domestic demand is weak.
David Madden at CMC Markets pointed out that that doesn’t tally up with industrial production and retail sales figures, which also improved in the first quarter.
Some analysts have also noted that it was odd how an economy which is growing by 6.4 per cent sees total business electricity consumption shrink by 1 per cent.
The Chinese government has ramped up fiscal stimulus, cutting taxes and spending on infrastructure.
The central bank has eased its monetary policy, and it’s set to ease it further in the coming months, to stoke lending and reduce borrowing costs.
Chinese banks lent a record 5.8trillion yuan (£660billion) in the first quarter, but critics say the country is now too reliant on cheap credit to spur demand.
Jianwei Xu, senior economist at Natixis in Hong Kong told Reuters: ‘We need more evidence to call a full-fledged recovery. Our view for the economy is still cautious.
‘We think it (the stronger-than-expected data) is somewhat linked to the stimulus, but we can’t attribute it all to it.’
Trade talks: China’s President Xi Jinping and US President Donald Trump
Analyst Neil Wilson at Markets.com said Trump’s decision not to raise tariffs in March and government stimulus have probably made the difference.
But he added: ‘Nevertheless, despite these better figures, we should remind ourselves that China is growing at its weakest pace in about three decades.’
The OECD yesterday warned of the dangers of prolonged stimulus, saying it will help support growth this year and the next but may undermine its drive to control debt.
Analysts expect the Chinese economy to slow to a near 30-year low of 6.2 per cent this year, as sluggish demand at home and abroad and the trade war continues to weigh on activity despite support measures.
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