Insights for What’s Ahead:

• Status of China’s Economic Recovery – China’s GDP growth beat expectations in Q1, increasing 4.5 percent y-o-y, up from 2.9 percent y-o-y in the previous quarter. Growth was largely driven by the ongoing recovery in services, which picked up speed in March, and better than expected export growth in March. While overall headline growth was strong in Q1, the recovery remains patchy, and April PMI data already suggests that factory activity continues to lag.
• Investment Trends – Fixed asset investment slowed in March, after a small bump in the Jan-Feb period, but overall remained relatively robust. The real estate sector is showing some signs of improvements, including a significant increase in new home sales.
• Consumption Trends – The consumption recovery is real, but still largely driven by service sector spending, which rebounded strongly in March. Overall, discretionary spending is also picking up notably. However, hiring intensions continued to slip in April, both for manufacturing and services, indicating that labor market weakness persists. The longer it takes for the labor market to stabilize, the softer the broader consumption recovery will be. 
• Trade Trends – Exports unexpectedly jumped 14.8 percent y-o-y in March, likely driven by easing supply disruptions and better than expected external demand. April data will likely be strong due to a low base, but we continue to expect export growth to lose momentum over the course of the year, given the expected slowdown in external demand. 
• Implications for Business – Q2 growth will likely come in strong as well, helped by a low base (due to last year’s Shanghai lockdowns), but at a slower quarter-on-quarter pace than Q1, given the weakening outlook for exports. We expect that moderating consumption momentum (after the initial burst of pent-up demand), weakening external demand, and the winding down of fiscal stimulus will put downward pressure on GDP growth in the second half of the year. Overall, China remains on track to reach 5.1 percent growth in 2023.