China: Economy grows 18.3% in 1Q21 due to base effect

China's National Bureau of Statistics said that GDP increased by 18.3% in 1Q21 compared to a year ago.

China's National Bureau of Statistics said that GDP increased by 18.3% in 1Q21 compared to a year ago. This is slightly below expectations for a 19% increase. The increase in growth came from the base effect of 1Q20, when the economy shrank 6.8% during the period when the epidemic of Covid-19 was the highest in the country. First quarter GDP grew by 0.6% compared to 4Q20 and slowed from a 2.6% increase in the quarter in 4Q20. China was the first country to experience the Covid-19 outbreak and survive its effects, and the economy returned to growth by 2Q20.


Annual figures will appear quite high due to the base effect, as they are comparable to periods such as March-April, when the worst effects of the epidemic last year were felt. Periodic data provide more insight into the momentum of the economic recovery during this period. In this context, the growth rate from quarter to quarter seems to have remained low. This is largely attributable to the new coronavirus cases seen on New Year's Eve, travel restrictions on the Lunar New Year holiday, and the absence of additional financial incentives. If we look at other high frequency leading data; Retail sales increased by 34.2% in March, exceeding expectations of 28% growth. Industrial production, which missed the market expectation of 17.2%, increased by 14.1% in March. Although urban unemployment fell to 5.3% in March, China's youth unemployment rate in the 16 to 24 age group is as high as 13.6%.


The Chinese economy steadily accelerated after the historic contraction in 1Q20 and recovered all the lost ground by the end of September. While the epidemic increased demand for Chinese medical products and electronic devices, strong industrial production and strong exports also led the recovery. Consumer spending has been delayed, but recent figures show a marked improvement in consumption as well. PBOC asked banks to curb loan growth in the coming months. Inflation is in an upward trend due to the costs created by commodity prices, but; In an environment where the recovery progresses gradually and exports are growing well, a meaningful monetary tightening is not expected yet. On the one hand, the US and Chinese relations are heading towards a negative rewarming point (trade issue, sanctions, Taiwan issue).

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