China’s economy grew by 5.3% in the first quarter, exceeding expectations

China’s economy grew faster than expected in the first three months of this year, helped by policies aimed at stimulating growth and strong demand, the government said on Tuesday.

The world’s second-largest economy grew at an annual rate of 5.3% from January to March, official data showed, beating analysts’ forecasts of about 4.8%. Compared with the previous quarter, the economy grew by 1.6%.

China’s economy has struggled to recover from the COVID-19 pandemic, with slowing demand and a housing crisis weighing on growth.

Tuesday’s better-than-expected data came days after China reported a 7.5% drop in exports in March from a year earlier, while imports were also weak. Inflation has cooled, reflecting deflationary pressures from weak demand during the housing crisis.

In the first quarter, industrial output increased by 6.1% year-on-year, and retail sales increased by 4.7% year-on-year. Fixed investment in factory and equipment increased by 4.5% year-on-year.

Louise Loo, China economist at Oxford Economics, said the strong growth from January to March was due to “broad performance in manufacturing,” household spending driven by the Lunar New Year holiday and policies that helped boost investment.

“However, ‘stand-alone’ March activity indicators point to weakness in the economy after the Lunar New Year,” she said. “External demand conditions remain difficult to predict, as evidenced by the sharp underperformance of exports in March.”

Loo noted that the elimination of excess inventory, normalization of household spending after the holidays and caution in government spending and other stimulus measures will affect growth in the current quarter.

Policymakers unveiled a series of fiscal and monetary policy measures as Beijing seeks to boost the economy. China has set an ambitious target of growing gross domestic product (GDP) by about 5% in 2024.

Such strong growth typically drives up share prices in the region. But on Tuesday, Asian stocks fell sharply as stocks retreated on Wall Street.

The Shanghai Composite Index fell 1.4% and Hong Kong’s Hang Seng Index fell 1.9%. The benchmark index in the smaller Shenzhen market in southern China fell 2.8%.

Strong growth in the region’s largest economy is often seen as a boon to its neighbors, which increasingly rely on Chinese demand to fuel their economies. However, the strong growth data is also seen as a signal that the government will stop further stimulus.