Growth Above Expectation in Q1 but Slowing in March

April 30, 2024

Trusted Insights for What’s Ahead™

• Status of China’s Economy – Q1 GDP growth came in at 5.3%, well above market expectation. While growth in January and February was strong, March data saw momentum wane. We have yet to see a change in the fundamentals (weak consumer confidence, slow growth in employment, household income and consumption, and a chaotic property market) that are among the root causes of economic weakness. Of note, the People’s Bank of China (PBOC) is setting up facilities for potential quantitative easing (QE). While this would help prop up investment-driven growth, it will do little to stimulate real demand. We are closely monitoring economic activity and government fiscal policy for more enduring signs of stabilization in early Q2. This may lead to an upward revision to our growth forecast for 2024, but in the meantime, we are maintaining it at 4.6%.
•  Investment Trends – Fiscal support issued late in 2023 bumped up investment growth in early 2024. Growth in fixed asset investment (FAI) accelerated in Q1 2024, up 4.5% y-o-y, mainly driven by manufacturing investment. An additional RMB 1 trillion in special treasury bonds and possible quantitative easing should help infrastructure and manufacturing investment pick up speed in 2024. Real estate investment will continue to be a major drag on growth in 2024.
• Consumption Trends – Retail sales grew by 3.1% year-on-year in March, down from 5.5% seen in January-February. The decline in March was driven by last year’s high base of comparison and the fading of pent-up demand released over the Luna New Year holidays. Looking ahead, the recovery in domestic private consumption will continue, but amidst significant headwinds, including ongoing weakness in consumer confidence, weak hiring intentions, and slow growth in household income.
• Trade Trends – Export growth dropped significantly in March 2024, decreasing by 7.5% y-o-y in March, down from 4.5% in February. Looking ahead, we don’t see substantial upside for export growth in 2024. While we no longer forecast the US to fall into recession this year, we still expect the global economy to decelerate in 2024, which will continue to weigh on external demand for China-manufactured goods. 
• Implications for Business – MNCs should remain cautious not to interpret the Q1 economic uptick as a new business cycle. Overall, uncertainty about the outlook remains very high, which means uncertainty around planning assumptions will remain high too. Readying down-market playbooks and closely aligning with HQ on how to recalibrate and finetune strategies to defend market share will therefore remain crucial