China’s Q1 GDP growth seen hitting record 19% as domestic, global demand recovers

FILE PHOTO: Containers are seen at the Yangshan Deep Water Port in Shanghai
FILE PHOTO: Containers and lorries are seen at the Yangshan Deep Water Port in Shanghai, China, as the coronavirus disease (COVID-19) outbreak continues, October 19, 2020. REUTERS/Aly Song/File Photo

April 15, 2021

BEIJING (Reuters) -China’s economy likely grew at record pace of 19% in the first quarter, rebounding from a pandemic slump early last year as demand recovered at home and abroad and as policy support for ailing smaller firms continued, a Reuters poll showed.

While the reading will be heavily skewed by the plunge in activity a year earlier, the expected jump would be the strongest since at least 1992, when official quarterly records started, according to the median forecasts of 47 economists polled by Reuters.

It would also signal the world’s second-largest economy has continued to gain momentum, after a 6.5% expansion in the last quarter of 2020.

China managed to largely bring the COVID-19 pandemic under control much earlier than many countries as authorities imposed stringent anti-virus curbs and lockdowns in the early phase of the outbreak.

That has helped its economy stage a rapid turnaround, led by stunning export strength as factories raced to fill overseas orders.

“We expect a strong bounce back in Q1 GDP this year, mainly driven by the low base in Q1 2020, but also due to higher exports and improving domestic demand,” said Raphie Hayat, Senior Economist with Rabobank.

“This will moderate later in the year, but we still expect China to easily beat its growth target of ‘above 6%’ for 2021.”

China will release first-quarter gross domestic product (GDP) data on Friday (0200 GMT), along with March factory output, retail sales and fixed-asset investment.

Separately, the poll also showed economic growth for 2021 is expected to be 8.6%, quickening from the previous year’s 2.3% pace to the strongest performance in a decade, and slightly higher than January’s forecast of 8.4%.

Growth is then expected to moderate to 5.5% in 2022, reflecting global economic normalisation and China’s long-term slowing economic trajectory due to structural and demographic changes.

Growth rates will likely slow as comparisons with virus-hit 2020 fade, analysts at UBS said in a note.

“We continue to expect domestic consumption to rebound to 10% in real terms and nominal export growth to pick up to 16%, both of which could help support corporate capex recovery and more than offset the expected moderation in property activities and infrastructure investment.”

With the economy back on more solid footing, the People’s Bank of China (PBOC) is turning its focus to cooling credit growth to help contain debt and financial risks, but it is treading cautiously to avoid derailing the recovery, analysts said. Policymakers have vowed no sudden policy shift.

Authorities are especially concerned about financial risks involving the country’s overheated property market, and have asked banks to trim their loan books this year to guard against asset bubbles.

China has set an annual economic growth target at above 6% this year, below analysts’ expectations, giving policymakers more room to cope with uncertainties.

The PBOC is unlikely to raise interest rates this year, the poll showed, despite rising market fears over tightening.

Analysts expect China will keep its one-year loan prime rate (LPR) steady at 3.85% until the end of 2021. The LPR has remained unchanged since May 2020.

Banks’ reserve retirement ratios (RRR) is expected to be unchanged at 12.5% through out the year.

The poll also predicted no change to the benchmark deposit rate until the end of 2021. The PBOC has kept it steady at 1.5% since October 2015.

Consumer inflation will likely to slow to 1.6% in 2021 from 2.5% in 2020, but it could pick up to 2.3% in 2022, according to the poll.

(For other stories from the Reuters global long-term economic outlook polls package:)

(Polling by Md. Manzer Hussain in Bengaluru and Jing Wang in Shanghai; Reporting by Lusha Zhang and Kevin Yao; Editing from Kim Coghill)