China will report its much anticipated Q1 GDP growth figures tomorrow, along with a couple of other figures that would otherwise be market moving. China is the first major world economy to report its GDP for this cycle, and investors could get insight on global economic performance from it. The large share of exports in China’s GDP is likely to be an indicator for global demand and consumer resilience. Meanwhile, it’s likely to be key for the outlook of commodities and their respective currencies.
There was a lot of anticipation that China would have a major rebound during the first quarter after lifting covid restrictions. But Q4 figures were substantially higher than expected, meaning that there was less room for a rebound. Global analysts have forecast lackluster economic performance for China this year, and even the Chinese government has provided less ambitious targets.
A low bar to beat
All of those factors can be setting up a situation where analysts underestimate China’s growth. Stronger than expected performance in the world’s second largest economy could substantially support risk appetite. Following the release of major US banking earnings on Friday, there have already been some signs for investors to feel more optimistic. The expected economic rebound in China hasn’t materialized, and an indication that it’s above the current outlook could support global markets.
On the other hand, a substantial disappointment could compound a series of economic data that has been pointing towards a global recession this year. What little risk appetite there is is fairly skittish, and vanishes at the first sign of negative results. Underperformance in China could drag on stock markets around the world, as well as commodity currencies, and give the dollar a boost.
What the market is looking for:
The consensus is that China will report GDP grew at 1.7% in Q1, above the 0.0% recorded in the final quarter of last year. But that would only represent a 3.2% growth rate compared to the prior year. That compares to the 5.0% target for the year set by the Chinese government for the year.
As for other key data points, the unemployment rate is expected to tick down to 5.5% from 5.6% prior. Meanwhile, Industrial Production is expected to show a relatively modest annual growth rate of 2.7% compared to 2.4% reported last month.
Future prospects
The Chinese government has been providing a wide range of stimulus over the last three months, including cuts to the reserve requirement ratio, which is equivalent to an interest rate cut. If the economy doesn’t show a substantial pick-up given the level of support it is currently getting, it could spell worries for the rest of the year.
China’s largest customer, the US, is expected to slip into a recession in the coming months, and retail sales have already been sliding. The worry is that Q1 could mark the high mark for growth in China, and therefore demand for commodities.
