AXA IM Talk on Asia & China Market: China’s Q1: Slower but more balanced growth

AXA IM’s Senior Emerging Asia Economist, Aidan Yao, shares his latest macro views on China and Asian Market every month.

This month he analyses the latest Q1 economic data of China and the implications behind it, which leads to an update of the full year GDP growth outlook.

Please find the full script below:

Hello, welcome to our monthly video series. My name is Aidan Yao. I’m the senior emerging Asian economist here at the AXA Investment Managers.

The Chinese economy rebounded impressively in the first quarter this year from the extremely low base in Q1 2020. GDP expanded by a whopping 18.3% in the first quarter, making it the strongest growth print in multiple decades.

However, lying beneath the impressive year-on-year print was a sequential slowdown in the economy on a quarterly basis.

The cause of the slowdown was obvious – the virus resurgence at the beginning of 2021 led to renewed mobility and social restrictions that prevented holiday shopping and travelling before and during the Chinese New Year.

The impact came through in the economic data was the service sector activity slowing notably in Q1, and the consumption recovery was put on-hold in the first two months of this year.

The good news is the COVID shock was small and short-lived. Not only have the mobility metrics improved significantly since February, consumption, services sectors’ activities and import growth have also picked up in the month of March. These have contributed to a rebalancing of growth drivers should support a more sustainable recovery going forward.

Incorporating the latest data, we have revised up our full-year GDP forecast to 8.5% from 8% previously. This mainly reflects the stronger GDP rebound we anticipate in the 2nd quarter after the soft patch in Q1.

We still expect the growth momentum to weaken in the 2nd half of the year as the impact of Beijing’s policy normalisation kicks in.

We think the risks around our central projection are balanced on both sies, although we suspect the financial market will likely pay more attention to the downside risk associated with the policy exit. The withdrawal of stimulus could prove challenging for specific sectors, such as the real estate market, and the vulnerable SOEs, LGFVs in the credit market. We doubt that these risks are large enough to derail China’s economic recovery, but they do require careful management by financial market investors.   

Thank you very much and stay safe!