Commentary Directory
- Q1 GDP Growth Jumps 1.1% on Strong Personal Consumption
- A Strong March Leads to a Surge in Chinese GDP in Q1 2023
- Durable Goods Retail Sales Suffer from High Interest Rates and Wary Consumers
- Choppy GDP Means UK Should Avoid Q1 Recession
- Japanese Consumer Confidence Jumps to Highest Level in Over a Year
- The End of Summer Sees the End of Disinflation in Europe
- Labor Market Indicators are Starting to Unify on Easing in Hiring
- Inflation and Tight Financial Conditions Weigh on the German Consumer
- Euro Area Money Supply Contracts for the First Time Since 2010
- Dismal Economic Data Out of Germany
- Core Durable Goods New Orders See Gentle Uptrend in July
- More UK Data Pointing to Q3 Decline
- Whispers of a UK Contraction in Q3
- Japan's Core Inflation Resumes Uptrend in July
- Early July Economic Data Leads to a Sharp Increase in Q3 Growth Expectations
- UK CPI: Energy Inflation Crashes but Services Inflation is Still Sticky
- China's Weak Start to Q3 Means More PBoC Easing
- A Breather for the Eurozone as Inflation Hits Two-Year Low
- Germany's September CPI Report: A Clearer Picture of Inflation Trends
- US Manufacturing Demonstrates Resilience Amidst Volatility in August
- The ECB Prepares to Address Excess Liquidity Through the MRR
- Bank of Japan is Too Optimistic on Inflation
- The Bank of England Pauses in a Near Split Decision
- UK Inflation August Update: A Precursor to the Bank of England's Announcement
- Housing Starts Tumble in August Amid Rising Mortgage Rates
- US Retail Sales Grow at Fastest Monthly Rate Since the Start of the Year
- US Consumer Prices Surge in August Driven by Energy Costs
- August NFIB Survey Showed a Tough Environment for Small Businesses
- All Signs Point to a Weaker Labor Market in August
- Chinese CPI Trying to Buck the Deflation Trend
- Energy Prices Rise but the Core Disinflationary Trend is Maintained in September
- PPI's Quiet Rise and the Energy Elephant in the Room
- Small Businesses Grapple with Inflation and Financial Strain in September
- A Wacky September Jobs Report Shows Strong Labor Market
- A Look at the Fragile US Labor Market Ahead of the Nonfarm Payrolls Report
- Thoughts on GME and This Week in the Stock Market
- Record Home Price Levels Point to Strength in Post-Pandemic Economy
- The Stock Market Looks Overvalued, but It's Probably Not
- China GDP Growth Surpasses Expectations
- President-elect Joe Biden Introduces His "American Rescue Plan"
- Political Polarization Intensifies with Another Impeachment Along Party Lines
- Metal Demand Has a Bright Future in 2021 and Beyond
- What Happened to That US-China Trade Dispute?
- Civil Unrest, A Rising Threat to the 2021 Economy
- What's in the $900 Billion Relief Plan?
A Strong March Leads to a Surge in Chinese GDP in Q1 2023
Jacob Hess
April 18, 2023
- China
- GDP
After a disappointing start to the first quarter, it appears that a strong March in China helped the economy bounce back strongly from a weak 2022. GDP grew 2.2% QoQ and 4.5% YoY in Q1 2023, beating consensus expectations that were heavily influenced by the frailty of the January/February numbers. In particular, China saw its industry grow 3.0% YoY, up slightly from 2.7% YoY in Q4 2022. This includes manufacturing growth of 2.9% YoY and mining growth of 3.2% YoY. The GDP beat was not a result of better factory activity. Instead, China’s services sector finally experienced its resurgence from the harsh restrictions of the last two years. Services grew a robust 5.4% YoY, up significantly from 2.3% YoY in Q4. The annual improvement in the service industry production index in March was a sharp 9.2% YoY. It appears that Chinese consumers got up and out into services businesses as spending there finally increased as it was expected to for some time. Tourism has especially been a boon for growth as domestic and international travel has recovered in Q1. One key area to note is real estate. The struggling sector has suffered from weak financial conditions and thus weak investment. It appears that the trend will continue in 2023. Real estate activity was down -5.8% YoY.

GDP received a huge boost from consumer spending in Q1 which was bolstered by surge in retail sales in March. Sales jumped 10.6% YoY which is a sharp acceleration from February's growth of 3.5% YoY. There was growth in almost every segment of sales, but non-durable goods categories saw the largest expansion. Food sales surged 26.3% YoY on the month alongside other non-durable goods markups including clothing (17.7% YoY) and entertainment goods (15.8% YoY). Durable goods categories, especially related to real estate, were the weakest. Building materials sales were down -4.7% YoY, and household appliance sales fell -1.4% YoY. These trends confirm that there are two major factors impacting the Chinese economy’s path. The first is a strong reopening catalyst that is sparking positive consumption developments, something that was largely expected by analysts when putting together growth estimates. The second is shaky credit conditions that are restricting both businesses’ and individuals’ abilities to make big purchases. Fixed asset investment grew 5.1% YoY in March which was a -0.4 ppt decline from February growth. Private investment was up only 0.6% YoY. Fiscal and monetary policy actions to address credit concerns are increasingly being considered in 2023.
Finally, we have a vigorous improvement in Chinese industrial production in March, up 9.3% MoM and 3.9% YoY in March (production grew 2.4% YoY in February). Manufacturing production was up 4.2% YoY, and as discussed before, was up 2.9% YoY in the first quarter. The two big areas of growth were in the auto manufacturing industry, up 13.5% YoY, and the electrical machinery manufacturing industry, up 16.9% YoY. Both are seeing booms from Chinese investment in green energy industries which has been a new goal of the Xi administration’s plan to dominate the space as it escalates competition with the US and Europe. New energy vehicle production surged 33.3% YoY, and solar cell production jumped even more, up 69.7% YoY. This will continue to be a trend driving growth in China for years to come.
China’s economy looks to be back. The Asian giant’s resurgence from COVID is being fueled by its citizens finally going out and spending again, sparking a much-needed boom in the services sector. Businesses are starting to feel that they have room to stretch their legs and expand again, especially in industries that are favored by Xi’s focus on high-tech manufacturing and green energy which aligns with China’s geopolitical struggle with the US and Europe. For now, though, weakness in those two regions is keeping Chinese export growth limited as they maintain the status of primary trading partners. Additionally, fragile financial conditions keep a solid ceiling on Chinese growth as debt concerns first sparked by the real estate sector persist. As reopening effects fade and the boom in consumption stabilizes, it seems that the economy will have to be driven by stimulating monetary and fiscal policies to sustain the strong performance that we have seen in Q1 2023. Nevertheless, for now it seems like the world’s Asian giant is back.