China’s economic activity slumps as Covid lockdowns hit growth

China’s economic activity contracted sharply in April as a wave of lockdowns across the country posed the biggest challenge to its growth outlook since the outbreak of Covid-19 more than two years ago. years.

Retail sales, the country’s main indicator of consumer activity which had already contracted in March, fell 11.1% year on year, against economists polled forecast a 6.6% drop. by Bloomberg.

Industrial production, which underpinned China’s rapid economic recovery from the initial Covid shock in early 2020 and was expected to rise slightly despite recent restrictions, fell 2.9%.

The data is the starkest sign of the growing economic toll of China’s approach to the coronavirus, which it has sought to undo through citywide shutdowns, mass testing and quarantine centers . Eliminating infections is a priority for President Xi Jinping ahead of his bid for a third term in office this year.

The zero-Covid strategy had largely contained the virus for the past two years, but authorities significantly stepped up their implementation of the strategy in 2022 following an outbreak of the highly infectious variant of Omicron, mostly centered around Shanghai, which was locked down at the end of March.

Dozens of cities and hundreds of millions of people across China have been placed on full or partial lockdown in a policy that is expected to have profound ramifications for global supply chains.

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China’s economy was already under pressure from a liquidity crunch in its heavily indebted property developers and a broader real estate slowdown as home sales plummeted.

Over the weekend, the government effectively cut base mortgage rates for new loans to first-time buyers from 4.6% to 4.4%, the latest in a series of easing measures intended to support one of the country’s most important economic engines.

“The government is facing increasing pressure to launch new stimulus measures to stabilize the economy,” said Zhiwei Zhang, chief economist at Pinpoint Asset Management, adding that the mortgage rate cut was “a step in this direction.” direction”.

But “the effectiveness of these policies depends on how the government ‘fine-tunes’ the zero-tolerance policy on the Omicron crisis,” he said.

Asian markets reversed early gains on Monday to trade lower after the data was released. China’s CSI 300 of stocks listed in Shanghai and Shenzhen opened 0.7 higher but fell 0.8% after the data was released, while Hong Kong’s Hang Seng index rose 1.1 % before dropping 0.4%.

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Authorities last week said citizens could not leave the country for ‘non-essential’ reasons and introduced tougher measures in Shanghai nearly seven weeks after a nationwide lockdown was introduced. the city. A city official said on Monday that authorities aim to widely reopen Shanghai from June 1.

China’s gross domestic product rose 4.8% year-on-year in the first quarter. The government has targeted 5.5% growth for the year, its lowest official target in three decades. Economists have already lowered growth forecasts for the second quarter.

Analysts at Australian bank ANZ maintained a 5% growth target for 2022 on the basis that the stimulus “will offset the loss of economic activity over the past two months”. But they were “pessimistic about China’s medium-term outlook” given expectations that support measures will be lifted next year.

“The impact of the Shanghai lockdown is considerable,” they wrote. “The economic and technological link with the rest of the world is threatened”.

The surveyed unemployment rate was 6.1% in April, its highest level since February 2020.

Additional reporting by Jennifer Creery in Hong Kong

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