BEIJING (Reuters) – China’s manufacturing and retail activity skyrocketed in the first two months of the year, exceeding expectations as the economy consolidated its rapid recovery from coronavirus paralysis in early 2020.
Although the impressive set of figures released on Monday was heavily skewed by the very low base of last year’s massive decline, analysts said they nevertheless showed that China’s strong recovery has remained intact.
Industrial production grew 35.1% in the first two months compared to the previous year, compared to an increase of 7.3% in the year seen in December, data from the National Bureau of Statistics showed, stronger than the median forecasts of a 30.0% increase in a Reuters analyst survey report.
Retail sales increased 33.8%, also faster than an expected 32% increase and marking a significant jump from 4.6% growth in December and a 20.5% contraction for January-February 2020 .
“We have a positive outlook for exports and manufacturing investments this year,” said Louis Kuijs, head of Economics for Asia and Economics at Oxford. “And we expect household consumption to become the main driver of growth starting in the second quarter, as confidence improves and the government’s call to cut travel is dampened.”
China’s ability to contain the coronavirus pandemic before other major economies could do so has allowed it to recover more quickly.
In 2020, it was the only major economy to register positive annual growth, with expansion of 2.3%.
The recovery was driven by robust trade, pent-up demand and government stimulus.
Export growth reached a record pace in February, while factory prices registered their biggest expansion since November 2018.
China’s economic activity is usually skewed in the first two months because of the weeklong Lunar New Year holiday, which fell in February 2021.
MODEST EXPECTATIONS
Despite the statistical noise of the most recent data, other measures point to a generalized recovery, with industrial production growing 16.9% and retail sales growing 6.4% compared to the first two months of 2019.
However, Liu Aihua, a spokesman for NBS, warned that while the positive factors for the Chinese economy are increasing, the basis for the recovery is still not solid.
“COVID-19 is still spreading around the world and global economic conditions are complex and severe; internally, the imbalances of the recovery are still quite obvious, ”Liu said at a news conference in Beijing.
The country saw sparse outbreaks of COVID-19 resurgent earlier this year, but controlled them in early February.
Urban unemployment surveyed reversed a steady decline and rose from 5.2% in December to 5.5% in February, indicating growing pressure on China’s labor market.
While millions of workers normally travel home during the Lunar New Year holiday, many have remained idle this year due to fears of COVID-19. This kept the factories running over the period, but it also had some impact on consumer spending.
Seasonally adjusted monthly data showed that retail sales growth fell from January to February, probably due to travel restrictions, but also to rising unemployment, analysts at Capital Economics said in a note.
Investment in fixed assets increased 35% in the first two months compared to the same period last year, slower than the expected jump of 40.0%. This is in comparison with the annual growth of 2.9% in 2020 and a drop of 24.5% in January-February of last year.
Investment grew 3.5% compared to the first two months of 2019.
Investment in fixed assets in the private sector, which represents 60% of total investment, increased 36.4% in January-February, against an increase of 1.0% in the whole of 2020.
Beijing this month set a modest annual economic growth target of over 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 seen in the monthly indicators may have already peaked, a sign that momentum is slowing.
However, he expects the infrastructure to receive a boost from a still accommodating fiscal policy, while exports are expected to maintain growth as the world economy opens up.
Reporting by Kevin Yao, Gabriel Crossley and Stella Qiu; Additional reporting by Roxanne Liu; Editing by Sam Holmes