Economists at Standard Chartered provide a brief outlook on the Chinese economy for the second quarter of 2023, based on the mixed economic performance witnessed in the first quarter.

Key quotes

“China’s headline GDP growth rebounded to 4.5% y/y in Q1 from 2.9% y/y in Q4-2022, beating the consensus forecast of 4.0% y/y. On a q/q seasonally adjusted (SA) basis, growth accelerated to 2.2% q/q in Q1, faster than 0.6% in Q4 and average pre-pandemic Q1 growth of 1.8% from 2017-19. Our calculation shows that China’s output gap narrowed to -1.2% of GDP in Q1 from -2.8% in Q4.”

“On a rolling annual sum basis, nominal GDP growth moderated to 4.5% y/y in Q1 from 5.3% in Q4. The widening gap between nominal GDP growth and reaccelerating M2 and total social financing (TSF) growth could, in our view, prompt the People’s Bank of China (PBoC) to temper credit growth in Q2 to ensure new loans are efficiently channelled to the real economy rather than circulated within the financial system.”

“We see modest upside risk to our annual GDP growth forecast of 5.8%. A strong base effect could see China’s Q2 GDP growth coming in higher than our forecast of 7.0% y/y, but a slowdown in the US and euro-area economies will likely weigh on China’s growth in H2.”