China: first-quarter GDP growth surprises to the upside


China’s positive confidence surveys have been confirmed, with first-quarter 2017 growth of +6.9% year-on-year, beating expectations of a stable +6.8%. Nominal GDP, a key number for debt ratios and corporate turnover, was boosted by rising industrial prices and increased at its strongest pace since 2012 (+11.8% versus +9.6%). According to monthly data, the faster first-quarter growth was down to both stronger domestic demand, especially investment in infrastructure and property, and better foreign demand on the tailwinds of an improved global outlook. Sector breakdowns point to a slight slowdown in services (+7.7% versus +8.3%), whilst the secondary sector gathered pace (+6.4% versus +6.1%).


This surprise first-quarter growth figure is a good starting point for the Chinese government, which has set its 2017 target at around 6.5%. March’s confidence surveys and economic data indicate that momentum is building as the economy heads into the second quarter. This positive growth picture could be an opportunity for the authorities to shift their focus slightly from economic stimulus to financial stability. China’s central bank has already tightened money market liquidity conditions and several cities have announced fresh measures to curb property inflation. That said, given this autumn’s 19th National Communist Party Congress, the authorities will be keen to avoid any sharp downturns. As such, growth should remain near to the government’s target for the quarters ahead.

The opinion expressed above is dated April 24th, 2017, and is liable to change.

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