China beats estimates, grows at 4.5% in first three months of 2023

China on Tuesday said that its economy grew by 4.5 percent in the first three months of 2023, at least 0.5 percentage points higher than the Reuters poll estimate of 4 percent. This was China's highest growth rate since the first quarter of 2022, when it grew by 4.8 percent.

On a quarter-on-quarter basis, China's GDP grew 2.2 percent in the January-March period, which was in line with the market expectations.

Two major drivers of the Chinese economy - factory output and retail sales - rose in January-March quarter this year. The factory output was up 3.9 percent in March, compared to 2.4 percent in the January-to-February period. On the other hand, retail sales of consumer goods rose 5.8 percent in the first quarter compared to the same period in 2022.

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"Economic recovery is well on track. The bright spot is consumption, which is strengthening as household confidence improves," Zhiwei Zhang, chief economist at Pinpoint Asset Management, told Reuters.

China's economy rebounding?

The signs of the world's second largest economy rebounding from the 2022 lows were already visible in March.

The manufacturing sector expanded in March 2023, with the purchasing managers' index (PMI) recorded at 51.9. A PMI higher than 50 shows the economy is expanding. The non-manufacturing PMI, which includes the services sector, rose to 58.2 in March - the highest since 2011.

In the same month, China's exports rose by 14.8 percent compared to the same period last year, when the country was in the midst of the zero-Covid policy.

"Riding on this trend, we expect GDP in the second quarter to reach around 8 percent...," Reuters quoted Tao Chuan, chief macro analyst at Soochow Securities, as saying.

"Zero-Covid" policy impact on China

The better-than-expected growth in the first quarter - January to March - came after China lifted its stringent Covid curbs last year.

The Chinese government's "zero-Covid" policy was blamed for China's economic growth faltering to just 3 percent last year, the lowest in nearly four decades. The growth rate registered in 2022 was lower than the government's estimate of 5.5 percent. It was a massive 250 percent lower than the 2021 growth rate of 8.1 percent.

China's factory output, retail sales and consumption fell last year as the "zero-Covid" policy disrupted supply chains and severely restricted movement of people.