China’s economy grew faster than expected in the first quarter but official data revealed a recent contraction in consumer activity as lockdown measures to counter the spread of Covid-19 weighed on the country’s outlook.

China’s gross domestic product rose 4.8 per cent compared with the same period a year earlier, after expanding by 4 per cent in the final three months of 2021. On a quarter-on-quarter basis, GDP grew 1.3 per cent.

Retail sales, a gauge of consumer spending, fell by 3.5 per cent in March — its first contraction since July 2020 — as authorities hardened restrictions to counter the country’s worst coronavirus outbreak in more than two years.

The data will add to pressure on the government of President Xi Jiping, which has reaffirmed its commitment to a zero-Covid policy despite its mounting costs and disruptions across the country’s biggest cities. Infections across China rose in April and Shanghai, its main financial hub, has remained largely sealed off.

The outbreak erupted at a precarious moment for China’s economy following a debt crisis in its real estate sector and a wider loss of momentum. The government has targeted growth of 5.5 per cent in 2022, its lowest in three decades.

Fu Linghui, a spokesperson for the National Bureau of Statistics, said that “the operation of the economy was generally stable” but pointed to “frequent outbreaks” of Covid-19 in China and an “increasingly grave and complex international environment”.

“With the domestic and international environment becoming increasingly complicated and uncertain, economic development is facing significant difficulties and challenges,” he said.

Data for the first three months will not capture the impact of recent events in Shanghai, which was in late March plunged into China’s most severe lockdown since the emergence of coronavirus in Wuhan. Analysts at Nomura last week estimated that 45 cities responsible for 40 per cent of China’s GDP were under complete or partial lockdowns, and added the country was at “risk of recession”.

In contrast to the weakness in consumer spending, industrial production, which was a big driver of China’s initial recovery from the pandemic in 2020, added 5 per cent year-on-year in March. Fixed asset investment rose 9.3 per cent in the first three months of the 2022 compared to the same period last year.

Even before this wave of the highly infectious Omicron variant gathered pace, China’s economy had been hit by a real estate crisis centred around highly-indebted developer Evergrande that spread across the entire property sector.

In addition to its lower annual growth target of 5.5 per cent, the government has also embarked on a round of monetary easing that led to a cut in crucial lending rates for the first time in years despite a previous push to reduce leverage. Xi has also promoted a “common prosperity” campaign designed to reduce inequality.

But the lockdown measures now dominate the country’s economic trajectory and have stoked anxiety over supply chain disruptions. Over recent weeks, Li Keqiang, China’s premier, warned repeatedly of economic risks, following on from a warning from Xi in March over the need to minimise the economic impact of Covid-19 policies.

Additional reporting by Maiqi Ding in Beijing

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