China records record year-on-year growth in the first quarter, but the recovery is seen as a slowdown

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The Chinese economy grew a record 18.3% in the first quarter of the year compared to the same period in 2020, when it had contracted for the first time in decades due to the COVID-19 pandemic. That was slightly below analysts’ expectations of a rebound greater than 19%. The economy recovered thanks to the dynamism of industrial production (+ 24.5%), as well as retail sales (+ 34.5%) and household consumption in general, with services lagging behind. According to the country’s National Statistics Office, production was still 10.3% above its level in the first three months of 2019. The economy expanded 0.6% in the period compared to the previous quarter ended in December 2020, a significant slowdown compared to the previous quarter-on-quarter growth of 3.2%. The Chinese government has set an official 6% growth target for 2021, but most analysts so far see that the economy will expand by more than 8%. The NBS saw in the numbers “a continuous momentum of stable recovery”, but warned that the pandemic “is still spreading globally and the international landscape is complicated with high uncertainties and instabilities.” The outlook: The slowdown could be welcomed by the government, which would not have to worry too much about a possible rise in inflation in the coming months. In which case, it could retreat to some neutrality of fiscal and monetary policies for now.

But if new pandemic waves hit China or the rest of the world, threatening the growth target, the government might prefer continued fiscal stimulus to lowering interest rates, which would go against its stated policy of helping deleveraging of the economy.