Chinese Q1 GDP beats forecasts, but growth tails off in March

Economic growth in China unexpectedly picked up in the first three months of the year, according to the National Bureau of Statistics of China, though separate data revealed that momentum had eased somewhat by March.

The news sent Asian stock markets into a tailspin overnight, with the Nikkei 225 and Hang Seng both dropping 2% each, after economic data underwhelmed.

Annual GDP growth rose to 5.3% in the first quarter from 5.2% in the fourth quarter of 2023, surprising economists who had expected a slowdown to 5.0%.

The beat was driven by "manufacturing outperformance, festivities-driven household spending, and the feedthrough of easy policy settings onto investments", according to economist Louise Loo, lead economist at Oxford Economics.

However, retail sales and industrial data for March showed economic activity had started to tail off by the end of the quarter.

Chinese retail sales rose by just 3.1% year-on-year in March after 5.5% growth in February, while industrial production growth slowed to 4.5% from 7.0% – with both figures missing economists' expectations.

"Given the likely inventory accumulation that occurred in Q1 (and therefore rising destocking pressures in Q2), the normalisation of retail sales post-festivities, the softness and unpredictability of external demand, and overall-careful stimulus, we now expect growth to decelerate in Q2," Loo said.