
China: Still Recovering, But Losing Steam
China: Still Recovering, But Losing Steam By Raphie Hayat of Rabobank Still recovering, but losing steam Summary China’s economic growth surged to 18.3% y/y, broadly in line with expectations A big part of this is due to the lower base in Q1 2020 Although the overall first quarter growth was driven by production, more recent data suggests that services are taking over, while production growth is slowing We think the recovery will lose steam as the initial pent up demand dies out and because policy support is being scaled back Moreover, trade will not help economic growth as much as it did in the past few months as China’s trading partners are slowing coming out of the pandemic and are requiring less working-from-home and other coronavirus-related exports from China. That is why we stick to our GDP forecast of 7.7% this year Despite the relative positive short term outlook, we remain gloomier for the long term as China’s ageing population, high debt load, weakening productivity growth and increasing international tensions will keep growth below the levels of the past 15 years Services are taking over China’s National Bureau of statistics (NBS) released Q1 GDP figures, which showed that GDP growth accelerated to 18.3% y/y, up from 6.5% y/y in Q4 2020 (figure 1). This was broadly in line with the Bloomberg consensus of 18.5% y/y although higher than our own estimate of 16.3% y/y. The main driver of the first quarter growth was industry and construction, which grew by 24.4% y/y, while services grew by 15.6% y/y (figure 2). However, the monthly data suggests that services growth has taken over, while production growth is coming down. Industrial production growth has moderated to 14.1% y/y in March (down from 35.1% y/y in January/February) while real retail sales growth has kept pace