HONG KONG—China’s economy got off to a racing start this year as factories churned out more goods and consumers dug deeper into their wallets.
While industrial output and retail spending in the first two months blew past analysts’ expectations, a rapidly spreading Covid-19 outbreak and the impact of war in Ukraine threaten an early end to the party and throw into doubt China’s ambitious target for economic growth of around 5.5%.
Industrial output jumped 7.5% during the first two months from a year earlier, accelerating from December’s 4.3% pace and more than double the 3.5% expected by economists polled by The Wall Street Journal.
Retail sales, a gauge of household consumption, rose 6.7% during the same period from a year earlier, beating the 4.3% growth expected by the surveyed economists. Catering sales, including from restaurants, grew at a faster pace than goods sales for the first time since July.
China saw a strong recovery in fixed-asset investment, which rose 12.2% in the first two months from a year earlier, compared with 4.9% growth in the same period of last year. Economists surveyed had predicted a 5% gain.
Investment in infrastructure projects increased by 8.1% from a year earlier, an indicator that authorities plan to rely more on funded projects to drive growth as the contribution from exports wanes and the real-estate sector’s woes drag on.
Shanghai this week. Covid-19 outbreaks in China have seen widening lockdowns.
Photo:
alex plavevski/Shutterstock
Defying market expectations, on Tuesday the central bank kept a key interest rate unchanged. Still,
Goldman Sachs
economists expect there will be more easing measures in coming months, such as a policy interest rate cut and lowering of the bank reserve requirement ratio.
Despite the forecast-beating official data, China’s overall growth remains unbalanced, with signs of lagging demand and pressure building up in the jobs market.
Broad credit expansion pulled back from 10.5% in January to 10.2% in February, slowing for the first time since September. In February, new medium- to long-term household loans, primarily mortgages, contracted for the first time since 2008, signaling that confidence remains weak even after authorities cut mortgage lending rates to spur demand.
Home sales by value slumped 22.1% in the first two months from a year earlier, the biggest decline since March 2020, when the initial eruption of the Covid-19 pandemic dealt a hammer blow to China’s economy. Real-estate investment during the first two months slowed to a 3.7% gain from a year ago, down from 4.4% growth in 2021.
China’s official unemployment rate edged up 0.4 percentage point to 5.5% in February from the end of 2021, while the youth jobless rate climbed to 15.3% in February from 14.3% in December.
“Given the downward pressure on organic growth, I think achieving a 5.5% target is really, really challenging,” said
Louis Kuijs,
chief Asia economist at S&P Global Ratings.
Beijing in early March set a growth target of around 5.5% for 2022, a goal deemed ambitious by many economists considering the headwinds the economy has to deal with.
A fresh wave of Covid-19 outbreaks, with the highest daily cases reported since early 2020, has seen widening lockdowns and factory closures that threaten both exports and domestic demand for services.
Covid outbreaks pose the biggest downside risk to China’s economy and make the government’s 5.5% growth target more challenging, said Yi Xiong, chief China economist at Deutsche Bank.
—Grace Zhu and Bingyan Wang contributed to this article.
Write to Stella Yifan Xie at stella.xie@wsj.com
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