China Economic Forecast

The economy accelerated in Q1 on the back of the disappearing impact of the pandemic, with the services sector driving the recovery. However, activity appeared to lose steam at the outset of Q2 as pent-up demand faded and economic sentiment remained subdued by elevated geopolitical tensions. In April, retail sales, credit and industrial production data notably undershot market expectations, and both the manufacturing and non-manufacturing PMIs fell. In addition, in the same month, the youth unemployment rate hit a record high even as the total unemployment rate ticked down. Moreover, the real estate sector is still in the doldrums despite the rollback of property restrictions: Housing investment and sales deteriorated in April. If the disappointing start to the quarter continues, this could spur fiscal or monetary easing ahead.

Consumer inflation dropped to 0.1% in April from March’s 0.7%. Producer prices fell 3.6% on an annual basis in April, which was a steeper drop compared to March’s 2.5% decrease. Price pressures should rise slightly later this year, although the upturn will be checked by car retailer discounts, a stronger yuan, reduced supply disruptions and mild external price pressures.