Data confirm recovery gaining firmer footing

China's factory activity grew for the third straight month in March while the construction and services sectors expanded at the fastest pace in 12 years, indicating that the country's economic recovery is gaining a firmer footing, official data showed on Friday.

The data, experts said, imply a decent GDP growth in the first quarter of the year, which may further accelerate in the second one. They, however, underscored the need to maintain macroeconomic policy support given the continuing pressures on employment and risks of falling external demand.

The official purchasing managers index for China's manufacturing sector, a key gauge of the sector's health, stood at 51.9 in March, down from 52.6 in February but marking the second-highest level in almost two years, the National Bureau of Statistics said on Friday.

The reading has stayed above the 50-point mark that separates growth from contraction for the third month in a row, the NBS said, pointing to a continuous recovery of factory activity as COVID disruptions faded.

Meanwhile, activity in the construction and services sectors expanded at the fastest pace in 12 years as the nonmanufacturing PMI for March came in at 58.2, up from 56.3 a month earlier and hitting the highest level since May 2011.

"The economy continued to stabilize and pick up," said Zhao Qinghe, a senior NBS statistician, adding that production and market orders of the manufacturing sector further recovered while reviving consumer spending and business travel boosted relevant segments of the services sector.

With the PMI readings pointing to an overall steady recovery, Wen Bin, chief economist at China Minsheng Bank, said China's first-quarter economic growth may stand at about 4.5 percent year-on-year and further pick up to 9 percent in the second quarter, versus a 2.9 percent growth in the fourth quarter of 2022.

Wen's estimate echoed the World Bank's latest forecast, which has upgraded China's economic growth projection to 5.1 percent this year, compared with 4.3 percent in January, according to the bank's latest East Asia and Pacific Economic Update.

Experts said China's consumption-driven economic recovery is expected to keep the PMI readings mostly in the expansionary territory in the coming months, with nonmanufacturing activity likely to continue outperforming the manufacturing sector.

David Chao, global market strategist for Invesco Asia-Pacific, excluding Japan, said China's consumption rebound will further unfold in a steady manner going forward as consumers gradually spend the large amount of deposits they accumulated during the pandemic, leading the way for China's economic recovery.

Nevertheless, the NBS said the sub-index of employment of both the manufacturing and nonmanufacturing sectors returned into the contraction territory in March, indicating that the labor market may remain soft.

Moreover, manufacturing activity at small and medium-sized firms moderated at a faster pace than large ones in March, according to the bureau.

"Enterprises still face prominent problems such as insufficient market demand, tight cash flow and high operating costs," said Zhao at the NBS.

Macroeconomic policy should continue focusing on growth stabilization in the second quarter, with monetary policy still having the scope to deliver targeted support, said Zheng Houcheng, director of the Yingda Securities Research Institute.

Experts particularly called for policy efforts to expand domestic demand and ease any potential difficulty facing exporters as external demand could weaken as global growth loses steam.

China's total imports and exports of goods and services came in at 3.32 trillion yuan ($482.9 billion) in February, up 10 percent year-on-year, the State Administration of Foreign Exchange said on Friday.

Signs that exports could sour, however, have emerged as the sub-gauge of new export orders for manufacturers dropped from 52.4 in February to 50.4 in March, the NBS data showed.