China's first quarter Gross Domestic Product (GDP) grew by 5.0% year-on-year, surpassing market expectations of 4.8% and marking the fastest pace in three quarters, according to TD Securities strategists. This figure sits at the top end of the official 4.5% to 5% target range and was driven by strong exports, which rose 14.7% year-on-year in dollar terms over Q1, as well as the early release of the bond quota [1]. Industrial output also exceeded expectations, increasing by 5.7% year-on-year compared to the market forecast of 5.3%, with AI-related manufacturing cited as a key contributor [1].
Despite the robust headline GDP and industrial output figures, underlying demand remains fragile. Retail sales grew by only 1.7% year-on-year, falling short of the market expectation of 2.4% [1]. The property sector showed particular weakness, with construction materials and furniture sales declining by 9% and 8.7% year-on-year, respectively [1]. Labor market conditions also deteriorated, as the survey jobless rate climbed to 5.4%, the highest in a year and above the market forecast of 5.2% [1].
External demand is also showing signs of strain. While exports were strong in Q1 overall, data released earlier in the week indicated a sharp deceleration in export growth from 22% year-on-year in January and February to just 2.5% in March. TD Securities attributes this slowdown to the impact of the Middle East war on external demand [1].
TD Securities concludes that, despite the solid Q1 GDP headline, concerns about weak consumer demand, property sector softness, and rising unemployment are overshadowing the positive growth figures. These factors have implications for the outlook of the Chinese Yuan [1].
CONCLUSION
China's Q1 GDP exceeded expectations, but underlying economic weaknesses—particularly in consumer demand, the property sector, and employment—are tempering optimism. The sharp slowdown in export growth and rising unemployment suggest that the headline growth may not translate into sustained momentum, with potential implications for the Yuan.