BEIJING (Reuters) – Activity in China’s factory and retail trade rose in the first two months of the year, exceeding expectations as the economy consolidated its rapid recovery from the early 2020 coronavirus palsy.
While the impressive string of data released Monday was heavily skewed by the very low base of last year’s massive slump, analysts said they nevertheless showed China’s strong rebound remained intact.
Industrial production was up 35.1% in the first two months from a year earlier, compared to a 7.3% year-on-year increase in December, data from the National Bureau of Statistics showed, stronger than a average forecast for a rise of 30.0% in a Reuters poll of analysts.
Retail sales were up 33.8%, also faster than a forecast increase of 32%, marking a significant jump from 4.6% growth in December and a 20.5% contraction in January-February 2020.
“We have a positive outlook for exports and investment in manufacturing this year,” said Louis Kuijs, head of Asia economics and Oxford Economics. “And we expect household consumption to become a major driver of growth from the second quarter as confidence builds and the government’s call to cut back on travel is softened.”
China’s ability to contain the coronavirus pandemic before other major economies could have allowed it to recover more quickly.
In 2020 it was the only major economy to report positive annual growth, at 2.3% growth.
The recovery was driven by robust trade, pent-up demand and government stimulus packages.
Export growth hit a record pace in February, while factory gate prices showed their largest increase since November 2018.
China’s economic activity is normally disrupted in the first two months due to the week-long Lunar New Year holiday, which fell in February 2021.
DAMAGED EXPECTATIONS
Despite the statistical noise in the latest data, other measures show a broad recovery with industrial production up 16.9% and retail sales growth of 6.4% compared to the first two months of 2019.
However, Liu Aihua, a spokeswoman for the NBS, warned that while positive factors for the Chinese economy are on the rise, the basis for the recovery is not yet solid.
“COVID-19 continues to spread around the world and global economic conditions are complex and severe; domestically, the imbalances of the recovery are still quite evident, ”Liu told a briefing in Beijing.
The country saw scattered COVID-19 outbreaks resurface earlier this year, but brought them under control in early February.
The urban unemployment rate surveyed reversed a steady decline, rising from 5.2% in December to 5.5% in February, indicating increasing pressure on the Chinese labor market.
While millions of workers normally travel home during the Lunar New Year holidays, many stayed in place this year due to fears of COVID-19. That kept the factories humming over the period, but it also had some impact on consumer spending.
According to seasonally adjusted month-on-month data, retail sales growth declined in January-February, likely due to both travel restrictions and increased unemployment, Capital Economics analysts said in a note.
Fixed asset investment is up 35% in the first two months from the same period a year earlier, slower than a predicted jump of 40.0%. That compared to 2.9% annual growth in 2020 and a decrease of 24.5% in January-February last year.
Investments grew by 3.5% compared to the first two months of 2019.
Private sector fixed asset investment, which accounts for 60% of total investment, increased by 36.4% in January-February, compared to an increase of 1.0% for the full year 2020.
Beijing set a modest annual economic growth target this month, at more than 6%, well below analysts’ consensus forecast of more than 8% this year.
Chinese Prime Minister Li Keqiang said last week that the focus for growth this year is on consolidating the economic recovery.
Zhang Yi, chief economist at Zhonghai Shengrong Capital Management, said the recovery in month-on-month indicators may already have peaked, but momentum is slowing.
However, he expects infrastructure to be boosted by the still accommodative fiscal policy, while exports are expected to continue to grow as the global economy opens up.
Reporting by Kevin Yao, Gabriel Crossley and Stella Qiu; Additional reporting by Roxanne Liu; Editing by Sam Holmes