First-quarter GDP beat expectations, but growth relied more on exports while domestic demand remained weak

Overview

The report presents three observations on the China market: first, first-quarter GDP and March industrial production were better than expected, but retail sales and fixed asset investment were weak, indicating that strong growth was mainly driven by exports; second, the slowdown in export growth in March was more affected by the Lunar New Year timing shift, and Goldman Sachs still sees upside risk to its 2026 forecast of 5% export volume growth; third, China’s interbank liquidity has recently been very ample, with the 7-day repo rate below the policy rate, supporting Chinese risk assets in the short term.

Core views

The core view is that China’s macro growth appears stronger than expected on the surface, but the structure is unbalanced. Exports remain the main support, while domestic demand recovery is insufficient; monthly export data were distorted by Lunar New Year timing effects, so the March slowdown should not be interpreted as a trend deterioration; against the backdrop of Middle East conflict and global market volatility, the central bank may continue to allow relatively ample interbank liquidity, thereby supporting risk assets.

Analysis framework

The report uses a macro high-frequency data commentary approach, comparing GDP, industrial production, retail sales, fixed asset investment, exports, and interbank rates with market consensus expectations, policy rates, and historical trends, while using the Lunar New Year timing shift, exporters’ FX settlement, and external geopolitical conflict to explain short-term volatility.

Methodology notes

• macro_data_trackingEconomic Activity and Surprise Analysis

  Compare actual released data with market expectations such as Bloomberg Consensus to identify growth momentum and surprises.

  By comparing actual GDP, industrial production, retail sales, and fixed asset investment figures with consensus expectations, the report concludes that although first-quarter economic performance beat expectations in aggregate, domestic demand indicators remained weak.

• seasonality_adjustmentLunar New Year Timing Shift Adjustment

  Use differences in Lunar New Year timing to explain unusual volatility in monthly data such as exports.

  Goldman Sachs estimates that the later Lunar New Year boosted January-February export growth by about 10 percentage points while dragging March export growth down by about 8 percentage points, and therefore does not believe the March export slowdown alone is enough to change its view on export resilience.

• liquidity_conditionsInterbank Liquidity Monitoring

  Assess market liquidity through the relationship among DR007, R007, and the 7-day reverse repo policy rate.

  The report notes that the 7-day repo rate has recently been below the 1.4% policy rate, indicating very ample interbank liquidity, which may continue to support Chinese risk assets.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Chinese risk assets

  Benefit from ample interbank liquidity and export resilience

  Strengths

  GDP and industrial production beat expectations, exports remain resilient, and the central bank’s ample liquidity supports risk appetite.

  Weaknesses

  Domestic demand indicators are weak, with retail sales and fixed asset investment below expectations, resulting in an unbalanced growth structure.

  Comparison

  Rather than focusing only on the March export slowdown, the report places greater weight on export trends after adjusting for the Lunar New Year timing shift and on overall first-quarter export performance.

  Risks

  External conflicts, global market volatility, slowing growth among low-income oil-importing countries, and continued weak domestic demand could weaken asset performance.

• China rates and interbank funding market

  Loose interbank liquidity, with repo rates below the policy rate

  Strengths

  Exporters’ FX settlement and the central bank’s risk-management bias may continue to keep funding conditions ample.

  Weaknesses

  Loose liquidity may reflect external uncertainty and weak real-economy demand more than a pure strengthening of growth momentum.

  Comparison

  The comparison of DR007, R007, and the 7-day reverse repo policy rate shows that short-end market rates have recently been below the policy rate.

  Risks

  If exporters’ FX settlement declines, external risks ease, or the central bank’s operating stance changes, funding conditions could tighten at the margin.

• China export-related assets

  Export resilience is an important support for macro growth

  Strengths

  First-quarter USD-denominated exports grew 14.7% year over year, and exports to major destinations remained broadly supported.

  Weaknesses

  March export growth slowed to 2.5% year over year, and monthly data have been highly volatile.

  Comparison

  The report believes the Lunar New Year timing shift made January-February exports look stronger and March exports look weaker, so the data should be viewed together rather than interpreting a single month in isolation.

  Risks

  After the Iran war, slower growth among low-income oil-importing countries could reduce China’s full-year export volume growth by about 2 percentage points.

Key data

• First-quarter real GDP5.0% yoyAbove the market consensus expectation of 4.8%.
• March industrial production5.7% yoyAbove the market expectation of 5.3%.
• First-quarter USD-denominated exports14.7% yoyThe report believes strong GDP growth was mainly driven by exports.
• First-quarter retail sales2.4%Below the aggregate growth performance, showing domestic demand remains weak.
• First-quarter fixed asset investment1.7%Below expectations, further confirming insufficient domestic demand.
• March USD-denominated exports2.5% yoyA sharp slowdown from 21.8% yoy in January-February, but Goldman Sachs believes it was mainly affected by the Lunar New Year timing shift.
• Goldman Sachs 2026 export volume forecast5%The report says risks to this forecast remain skewed to the upside.
• 7-day reverse repo policy rate1.4%The recent 7-day repo rate has been below this policy rate, reflecting ample interbank liquidity.

Impact & implications

In terms of investment implications, the report is relatively positive on the short-term liquidity environment for Chinese risk assets, but remains cautious on growth quality. Export resilience and ample liquidity may improve market risk appetite, while weak retail sales and investment mean that policy support and domestic demand recovery remain key areas to watch.

Risks

• Domestic demand remains weak, with retail sales and fixed asset investment below expectations, which may limit the sustainability of growth.
• Exports are contributing heavily to growth; if external demand slows or geopolitical conflict hits trading partners’ demand, growth could come under pressure.
• Middle East conflict and global market volatility could increase uncertainty and affect expectations for policy and liquidity conditions.
• March export data showed significant monthly volatility; if subsequent data fail to recover, the market may reassess export resilience.
• If loose liquidity does not transmit to real demand, support for risk assets may remain more at the valuation and sentiment level.

What to watch

• Whether subsequent monthly export data confirm a recovery after the Lunar New Year timing shift.
• Whether retail sales and fixed asset investment improve, confirming whether domestic demand has truly stabilized.
• Whether the spreads between DR007, R007, and the 7-day reverse repo policy rate remain at low levels.
• Whether exporters’ FX settlement ratios remain high.
• The impact of Middle East conflict and global market volatility on external demand and central bank liquidity operations.
• Whether Chinese policy provides further support for consumption, property, and investment demand.