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China’s economy exceeds predictions despite ongoing challenges

Fitch’s negative rating outlook underscores (Via Kane Jones/Getty Images)

China’s economy did better than expected in the first quarter, bringing some relief despite problems in the property sector and increasing debts of local governments. Analysts were aiming for a growth rate of 5% in 2024, considering that last year’s 5.2% growth might have been boosted by the rebound from COVID-19.

The Gross Domestic Product (GDP) grew by 5.3% compared to the same period last year, surpassing the forecast of 4.6% and the previous quarter’s 5.2%. Jeff Ng from SMBC noted that the momentum seemed stable but anticipated a slowdown later in 2024.

In the first quarter, GDP grew by 1.6%, higher than the expected 1.4%. However, China is still facing challenges such as a prolonged downturn in the property market, increasing debts of local governments, and slow growth in consumer spending.

Fitch’s negative assessment of China’s sovereign credit rating pointed out risks arising from a shift in spending from property to infrastructure and technology.

Concerns linger over weakening industrial output (Via Hannah Potter/Shutterstock)

The government is investing in infrastructure to boost the economy, while consumers are cautious about spending and businesses are hesitant to invest.

Data from March showed that consumer inflation was cooling down, producer prices were falling, and there was a slowdown in exports, retail sales, and bank lending. Industrial output increased by 4.5%, which was lower than the expected 6.0%, and retail sales grew by 3.1%, below the expected 4.6%.

Annual fixed asset investment grew by 4.5%, surpassing the expected 4.1%. However, Alvin Tan from RBC Capital Markets in Singapore warned that the momentum was weak.

China’s economy is facing various challenges, including the ongoing property crisis, sluggish consumer spending, and global tensions, especially with the United States.

To address these challenges, the People’s Bank of China promised to provide more policy support, potentially including further reductions in banks’ reserve requirements and interest rates.

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