Hong Kong —

China’s economy got off to a strong start in 2023, as consumers went on a spending spree after three years of strict pandemic restrictions ended.

Gross domestic product grew 4.5% in the first quarter compared to the previous year, the National Statistics Office reported on Tuesday. That beat the estimate of 4% growth in a Reuters poll of economists.

But private investment barely let up and youth unemployment rose to the second-highest level ever recorded, indicating that the country’s private sector employers are still wary of longer-term perspectives.

Consumption registered the greatest rebound. Retail sales increased 10.6% in March from a year ago, the highest level of growth since June 2021. In the months of January through March, retail sales grew 5.8%, driven primarily by an increase in revenue from the catering industry.

“The combination of a steady rebound in consumer confidence, as well as the still incomplete release of pent-up demand, suggests to us that the consumer-led recovery still has room to go,” said Louise Loo, chief China economist at Oxford Economics.

Industrial production also showed a constant increase. It rose 3.9% in March, compared to 2.4% in the January-February period. (China typically combines its January and February economic data to account for the impact of the Lunar New Year holiday.)

Last year, GDP grew by fair 3%, well below the official growth target of “around 5.5%,” as Beijing’s approach to eradicating the coronavirus wreaked havoc on supply chains and hit consumer spending.

After massive street protests gripped the country and local governments ran out of cash to pay huge Covid bills, authorities finally scrapped the zero Covid policy in December. After a brief period of disruption due to the Covid surge, the economy has begun to show signs of recovery.

Last month, an official gauge of non-manufacturing activity jumped to its highest level in more than a decade, suggesting the country’s crucial services sector was benefiting from a resurgence in consumer spending after the end of pandemic restrictions.

As the economic recovery gains strength, investment banks and international organizations have raised China’s growth forecasts for this year. In its World Economic Outlook released last week, the International Monetary Fund said China is “recovering strongly” following the reopening of its economy. The country’s GDP will grow 5.2% this year and 5.1% in 2024, he predicted.

However, some analysts believe that the strong growth reported in the first quarter was a product of the “recharging” of economic activity starting in the fourth quarter of 2022, which was weighed down by pandemic restrictions and then by a chaotic reopening.

“Our main view is that China’s economy is deflationary,” Raymond Yeung, chief Greater China economist at ANZ Research, said in a research report on Tuesday.

If adjustments are made to take into account the impact of the delay in economic activity, GDP growth in the first quarter could have been only 2.6%, he said.

Some key data released Tuesday supports this idea. For example, private investment was extremely weak.

Investment in fixed assets by the private sector increased by just 0.6% from January to March, indicating a lack of confidence among entrepreneurs. (Meanwhile, state-led investment advanced 10%). That’s even worse than the 0.8% growth recorded in the January-February period.

The Chinese government has resorted to surprising measures to restore confidence among private entrepreneurs, but the campaign has inspired more nervousness than optimism.

The important real estate sector is also mired in a deep recession. Real estate investment decreased 5.8% in the first quarter. Property sales by surface area decreased by 1.8%.

“The national economy is recovering well, but the constraints of insufficient demand remain obvious,” NBS spokesperson Fu Linghui said at a news conference in Beijing on Tuesday. “Prices of industrial products continue to fall and companies face many difficulties in terms of profitability.”

Unemployment continued to rise among young people.

The unemployment rate among people aged 16 to 24 reached 19.6% in March, for the third consecutive month. It was the second highest level on record, only behind the 19.9% ​​level reached in July 2022.

The high unemployment rate among young people suggests “a sluggishness in the economy,” Yeung said.

“By June, there will be a new group of graduates looking for jobs. The unemployment situation could worsen further if China’s economic momentum falters,” he added.

China’s Ministry of Education previously estimated that a record 11.6 million college graduates will seek employment this year.

At last month’s meeting of the National People’s Congress, the country’s official parliament, the government set out a cautious growth plan for this year, with a GDP target of around 5% and a job creation target of 12 million.