China GDP growth beats forecasts but lockdowns weigh on outlook

China’s economy expanded faster than expected in the first quarter but official data revealed a recent contraction in consumer activity as sweeping Covid-19 lockdowns clouded the country’s growth outlook.

China’s gross domestic product rose 4.8 per cent compared with the same period a year earlier, after expanding 4 per cent in the final three months of 2021. On a quarter-on-quarter basis, GDP grew 1.3 per cent.

Analysts had projected gains of 4.4 per cent year on year and 0.6 per cent quarter on quarter as Covid-19 outbreaks have increased, leading authorities to largely seal off Shanghai, the country’s financial hub.

Retail sales, a gauge of consumer spending, fell 3.5 per cent in March — their first year-on-year fall since July 2020 and worse than a projected 1.6 per cent decline — as authorities hardened restrictions to counter the country’s worst coronavirus outbreak in more than two years. In the same month, the official unemployment rate rose to 5.8 per cent, its highest level since May 2020.

The data will heap greater pressure on President Xi Jinping’s government, which has reaffirmed its commitment to a zero-Covid policy despite the mounting costs and disruption across the country’s biggest cities.

The lockdowns came at a precarious moment for China’s economy following a debt crisis in its real estate sector and a wider loss of momentum. The government has targeted growth of 5.5 per cent in 2022, its lowest in three decades.

Fu Linghui, a spokesperson for the National Bureau of Statistics, said that “the operation of the economy was generally stable” but pointed to “frequent outbreaks” of Covid-19 in China and an “increasingly grave and complex international environment”.

“The country is facing recurring waves of the pandemic in many places and its impact on the economy is increasing,” he said.

Data for the first three months will not capture the full extent of recent events in Shanghai, which since late March has suffered China’s most severe citywide lockdown since the emergence of coronavirus in Wuhan. Analysts at Nomura last week estimated that 45 cities responsible for about 40 per cent of China’s GDP were under complete or partial lockdowns, and added the country was at “risk of recession”.

Tommy Wu, lead China economist at Oxford Economics, suggested the 4.8 per cent GDP increase “mainly reflects the growth seen in the official January-February data before the weakening in economic activities in March”.

He added: “The central government is now trying to balance minimising disruption against controlling the latest wave of Covid infections, but the disruption is likely to last for weeks and will weigh on activity in April and into May, if not longer.”

In contrast to the sudden weakness in consumer spending, industrial production, which was a big driver of China’s initial recovery from the pandemic in 2020, added 5 per cent year on year in March. Fixed asset investment rose 9.3…