China: Growth hits record high in annual terms in Q1, although underlying momentum eases
GDP growth accelerated to 18.3% year-on-year in the first quarter of 2021 from 6.5% in the fourth quarter of last year, marking the strongest reading on record.
The annual print was supported by surging retail sales—which benefited from improved consumer confidence—as well as sharp rises in industrial production, investment and exports amid strong demand abroad. Moreover, agricultural production was boosted by a recovery in pig numbers as farmers continued to rebuild their herds following the outbreak of African swine fever in 2018–19. However, the first quarter’s reading was heavily skewed by a favorable base effect, given that the economy contracted sharply in Q1 last year.
On a seasonally-adjusted quarter-on-quarter basis, economic growth lost momentum, coming in at 0.6% in Q1, down from 3.2% in the previous period. Q1’s reading marked the worst since Q1 2020, with activity held back in the early part of this year by an uptick in Covid-19 cases, which led to localized restrictions.
Looking ahead, annual growth rates should moderate sharply from Q2 onwards as the base effect becomes less favorable, although the economy will remain on the path to recovery.
On the outlook, Iris Pang, chief China economist at ING, stated:
“The high GDP growth in 1Q21 will not persist over the rest of the year. Most quarters should experience moderate growth because without base effects to swell the comparison, “super-high” growth will be very hard to repeat. Quarter on quarter growth rates should continue to stabilise between 1% to 2%. Domestic consumption will continue to be the stabiliser of the economy, and digital infrastructure investment will be the backbone of future growth.”