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, fell 11.1% year-on-year, against a forecast of a 6.6% drop by economists polled by Bloomberg. Retail sales fell in March, down 3.5% year on year.
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, who reaffirmed his commitment to the strategy this year ahead of his bid for a third term in office.
The zero-Covid approach had largely contained the virus for the past two years, but authorities dramatically stepped up measures in 2022 following an outbreak of the highly infectious Omicron variant. The restrictions have mainly focused on Shanghai, which was locked down at the end of March.
“Activity in April was weaker than expected, [and] the declines were driven by retail sales, which is understandable in the context of the shutdowns,” said Carlos Casanova, senior economist for Asia at UBP. He expects retail sales to contract even more in May.
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.
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.
Zhiwei Zhang, chief economist at Pinpoint Asset Management, noted that the government was under pressure to launch further stimulus and that lowering mortgage rates was “a step in that direction”. But he added that “the effectiveness of these policies depends on how the government ‘fine-tunes’ the zero-tolerance policy on the Omicron crisis”.
European stocks opened lower after Asian markets reversed early gains. The Stoxx 600 stock index fell 0.8% and the FTSE 100 0.7%. The CSI 300 of stocks listed in Shanghai and Shenzhen closed down 0.8%. Hong Kong’s Hang Seng Index had a volatile trading day, rising as much as 1.1% before falling 0.4% and recovering to end the day up 0.3%.
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 would “compensate for 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.