(Bloomberg) -- China’s economy showed a few signs of improvement in January as the country charted a path through its second month without Covid Zero curbs, though a major holiday season kept a lid on some activity.

Bloomberg’s aggregate index of eight early indicators showed a slight uptick in activity in January. That compared with a contraction in December as the economy slowed in response to a massive Covid-19 outbreak.

January marked the first time that Chinese people were able to travel during the Lunar New Year holiday period without major restrictions since the pandemic began.

Early signs showed a rise in activity as more than 300 million trips were made during the holiday, nearly 90% of pre-pandemic levels, according to the Ministry of Culture and Tourism. Box office figures were higher, too, topping last year’s holiday.

Restaurant revenue spiked nearly 25% during the festival period from a year ago, according to a survey from the China Cuisine Association, while major retail and catering firms saw their sales jump nearly 7% year-on-year, state media CCTV reported citing figures from the Ministry of Commerce.

Consumption is seen as a much-needed driving force for the world’s second-largest economy this year, particularly as the global economy cools. China’s State Council said the nation needs to accelerate its consumption recovery, CCTV reported over the weekend.

The optimism was present in major onshore stocks even before the holiday began as investors cheered the reopening and fading outbreaks. After losing momentum in December, the CSI 300 Index regained traction this month, advancing about 8% ahead of the holiday week compared with the end of last month. As trading resumed Monday, the benchmark equity gauge was set to enter a bull market.

What Bloomberg Economics Says ... 

“High frequency data signal spending surged during China’s first unrestrained Lunar New Year celebration since 2019. The end of Covid Zero appears to have released a flood of pent-up demand. Not all the data are positive, but most of them back our view that reopening will be rapid – and that consumer spending should provide key support to the recovery.”

— David Qu, economist

Read the full report here.

Other indicators weren’t as positive, either as business activity slowed during the Lunar New Year season or as the global economy continued to struggle.

Read More: China Celebrated Lunar New Year Like Covid No Longer Exists

Confidence among small businesses was better in January than in December, with real estate, transport, accommodation and catering activity seeing a sharp rebound, according to Standard Chartered Plc.

Even so, the index measuring that confidence fell just short of expansion, Standard Chartered economists Hunter Chan and Ding Shuang wrote in a note this month. They added that a sub-index measuring manufacturing activity retreated “partly due to holiday effect.”

Car and home sales fell in the first weeks of the month. Additional data from China Real Estate Information Corp., which tracks 40 major cities, showed that residential sales by area declined 14% from a year earlier during the week that included the holiday, suggesting the sector remains a concern.

Factory-gate prices, meanwhile, remained in deflation — though not as deeply as in November and December. 

Early trade data from South Korea showed the global economy is continuing to struggle, with exports falling 2.7% in the first 20 days of the month. While the headline number was better than December’s 8.8% fall, there were some concerning aspects. 

Shipments to China fell 24.4% in the period, underscoring how long the road ahead is for the recovery of the world’s second-largest economy, even after it scrapped restrictions. 

While economists have been upgrading their gross domestic product forecasts for 2023, they’ve also warned that disruptions and the Lunar New Year holiday will likely weigh on the first quarter before the rebound takes hold.

Early Indicators

Bloomberg Economics generates the overall activity reading by aggregating a three-month weighted average of the monthly changes of eight indicators, which are based on business surveys or market prices.

  • Major onshore stocks - CSI 300 index of A-share stocks listed in Shanghai or Shenzhen (through market close on the 25th of the month).
  • Total floor area of home sales in China’s four Tier-1 cities (Beijing, Shanghai, Guangzhou and Shenzhen).
  • Inventory of steel rebar, used for reinforcing in construction (in 10,000 metric tons). Falling inventory is a sign of rising demand.
  • Copper prices - Spot price for refined copper in Shanghai market (yuan/metric ton).
  • South Korean exports - South Korean exports in the first 20 days of each month (year-on-year change).
  • Factory inflation tracker - Bloomberg Economics-created tracker for Chinese producer prices (year-on-year change).
  • Small and medium-sized business confidence - Survey of companies conducted by Standard Chartered.
  • Passenger car sales - Monthly result calculated from the weekly average sales data released by the China Passenger Car Association.

--With assistance from James Mayger and Yujing Liu.

(Updates with more spending figures from Chinese media reports, Bloomberg Economics comments.)

©2023 Bloomberg L.P.