China’s economy cools sharply in April as lockdowns bite

Customers wait outside a restaurant in Beijing, China April 15, 2022. REUTERS/Tingshu Wang/Files

Customers wait outside a restaurant in Beijing, China April 15, 2022. REUTERS/Tingshu Wang/Files

BEIJING — China’s economic activity cooled sharply in April as widening COVID-19 lockdowns weighed heavily on consumption, industrial production and employment, adding to fears that the economy could shrink. contracts in the second trimester.

Full or partial shutdowns were imposed in dozens of cities in March and April, including an extended closure of the Shanghai Mall, keeping workers and shoppers confined to their homes and severely disrupting supply chains.

Retail sales in April fell 11.1% from a year earlier, the biggest contraction since March 2020, data from the National Bureau of Statistics (NBS) showed on Monday, and worse than expected.

Restaurant services were suspended in some provinces, leading to a 22.7% decline in restaurant revenue in April. Auto sales in China fell 47.6% from a year earlier as automakers cut production amid empty showrooms and parts shortages.

As anti-virus measures blocked supply chains and crippled distribution, industrial production fell 2.9% from a year earlier, below expectations for 0.4% growth. The reading was the biggest drop since February 2020.

In line with falling industrial production, China processed 11% less crude oil in April than a year earlier, with daily throughput falling to the lowest since March. The country’s power generation in April also fell 4.3% from a year earlier, the lowest since May 2020.

The shock also weighed on the labor market, which Chinese leaders have prioritized for economic and social stability. The national survey-based unemployment rate rose from 5.8% to 6.1% in April, the highest since February 2020, when it stood at 6.2%.

The 6.7% unemployment rate in 31 major cities in April is the highest since records began in 2018.

The government aims to keep the unemployment rate below 5.5% in 2022.

China wants to create more than 11 million jobs, and preferably 13 million urban jobs this year, Premier Li Keqiang said in March, but he recently called the country’s employment situation “complicated and dark” following the worst outbreaks of COVID-19 since 2020.

Investment in fixed assets, a main driver Beijing relies on to support the economy as exports lost momentum, rose 6.8% year-on-year in the first four months, against an expected rise of 7 .0%.

The prolonged lockdown in Shanghai and prolonged testing in Beijing are adding to concerns about economic growth for the rest of the year, said Nie Wen, Shanghai-based economist at Hwabao Trust.

“It is still possible to achieve GDP growth of around 5% this year if the COVID curbs only affect the economy in April and May. But the virus is so contagious and I remain concerned about future growth. »

Goal to achieve

Analysts say Beijing’s official growth target of around 5.5% for 2022 looks increasingly elusive as authorities maintain draconian zero-COVID policies. Additionally, the key real estate market is in a prolonged slump and export growth has slowed to its lowest level in two years.

The economy grew 4.8% in the first quarter.

Chinese financial authorities announced on Sunday that they would let banks lower the lower limit on interest rates on home loans by the corresponding term of the prime lending rate for first-time home purchases, a move aimed at supporting the housing demand and promote healthy development of the country’s housing market. .

ING analysts expect economic growth to contract 1% in the second quarter from a year earlier, while Nomura said China’s economy has faced increasing risk of recession since mid-March .

Capital Economics now forecasts Chinese growth of just 2% for the full year, and says that while COVID cannot be controlled, even that is not guaranteed.

“Even once the current virus wave is over, COVID controls will continue to dampen activity to some degree in the coming quarters,” he said in a note on Friday.

While policymakers have repeatedly pledged more support for the slowing economy, stimulus measures have so far been “disappointing”, with only small policy rate cuts, he added. .

China’s central bank on Monday rolled over maturing medium-term political loans while keeping the interest rate unchanged for a fourth consecutive month.

Nie said authorities would be cautious in rolling out quantitative measures such as large-scale cuts in interest rates or banks’ reserve requirement ratios to stimulate the economy, given concerns over interest rate hikes. interest and the depreciation of the Chinese currency, but structural and targeted measures, such as in the real estate sector, would be preferred.

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