Chinese authorities will likely keep the liquidity taps running and step up credit, especially to distressed sectors such as real estate, analysts said after first-quarter economic growth came in stronger than expected.
GDP grew 4.5% year over year in the January-to-March period, the National Bureau of Statistics of China said in an April 18 statement. The pace was the fastest in a year, after GDP growth slowed to 2.9% in the final quarter of 2022. The resumption in activity, especially in the tertiary sector, in the wake of most pandemic-related restrictions being lifted contributed significantly to the GDP growth.
"With this GDP report, we believe there is no immediate need for the government to put massive stimulus into the economy," Iris Pang, chief economist of Greater China at ING, wrote in an April 18 note for clients.
Investors and analysts were keenly watching the GDP data for indications that the world's second-biggest economy may bounce back after nearly three years of COVID-19 restrictions. China missed its 2022 GDP growth target by a wide margin as the economy expanded 3.0% versus the government's 5.5% aim. China is aiming for around 5.0% in 2023, cautiously stepping up support for the economy as it recovers from the pandemic.
Retail boost
The main reason for the faster-than-expected GDP growth was much stronger retail sales, Pang said. Still, investments in the property sector remain in contraction despite some improvement in home sales.
"The Chinese authorities will likely continue to drive lending to mortgage, which will allow quality developers to improve their liquidity and ensure projects are completed on time to restore confidence in the sector," said Angus Lam, senior economist for global intelligence and analytics at S&P Global Market Intelligence. "We believe credit growth in 2023 will exceed the level seen in 2022, reaching 13%," Lam said.
The People's Bank of China (PBOC) will be prepared to ease its monetary policy further to lend support to the economy's recovery, analysts said.
"China appears decisively on track to achieve the government's conservative GDP target of around 5% for this year," Nomura said in an April 18 note.
GDP growth can rebound faster in the second quarter on a low base of comparison, Nomura said, however "we still assign a higher likelihood than before to the PBOC slightly lowering its benchmark MLF [medium-term lending facility] rate in the next couple of months", given the likely slower subsequent growth weak export and worsening fiscal conditions in low-tier cities.
By adjusting the MLF rate, the Chinese central bank regulates liquidity in and out of commercial banks.
