COVID-19 lockdown bites China’s economy to cool sharply in April

China’s economic activity cooled sharply in April as the expansion of the Covid-19 lockdown had a significant impact on consumption, industrial production and employment, adding to fears that the economy could shrink in the second quarter. Dozens of cities were subjected to complete or partial lockdowns in March and April, including prolonged shutdowns in the commercial hub of Shanghai, keeping workers and shoppers confined to their homes and severely disrupting supply chains.

Retail sales in April fell 11.1% year-on-year, the biggest contraction since March 2020, data from the National Bureau of Statistics (NBS) showed Monday, and worse than forecast. Dining-out services were suspended in some provinces, resulting in a 22.7% drop in catering revenue in April. China’s auto sales fell 47.6% year-on-year as carmakers reduced production amid empty showrooms and parts shortages.

Due to the anti-virus system shutting down the supply chain and shutting down distribution, industrial production fell by 2.9% year-on-year, less than the expected 0.4% growth. Reading was the biggest drop since February 2020. Consistent with the decline in industrial production, China processed 11% less crude oil in April than a year earlier, with its daily throughput falling to its lowest level since March. The country’s power generation in April also declined by 4.3% over the previous year, the lowest since May 2020.

The push has also weighed on the job market, which Chinese leaders have prioritized for economic and social stability. The nationwide survey-based unemployment rate rose to 6.1% from 5.8% in April, the highest since February 2020 when it was 6.2%. April saw the highest unemployment rate of 6.7% in 31 major cities since the record began in 2018.

The government aims to keep the unemployment rate below 5.5% by 2022. China wants to create more than 11 million jobs this year, and preferably 13 million urban jobs, Premier Li Keqiang said in March, but he recently described the country’s employment situation as “critical” and “terrible” for the worst COVID-19 outbreak since 2020. Later.

Fixed asset investment, a key driver that Beijing is counting on to boost its economy as exports lost momentum, grew 6.8% year-on-year in the first four months, compared to the expected 7.0% growth. Prolonged lockdowns in Shanghai and protracted tests in Beijing have raised concerns about economic growth for the rest of the year, said Ni Wen, a Shanghai-based economist at the Habao Trust.

“Achieving about 5% GDP growth this year is still possible if covid resistance is only going to affect the economy in April and May. However, the virus is highly contagious, and I am concerned about moving forward.” Hard-to-achieve goals

Analysts say achieving Beijing’s official 2022 growth target of around 5.5% is likely to be difficult because officials have maintained a strict zero-COVID policy. Moreover, the real estate market is in a prolonged recession and export growth has fallen to a two-year low. The economy grew 4.8% in the first quarter.

China’s financial authorities said on Sunday that they would allow banks to lower interest rates on home loans based on terms similar to the loan prime rate for the first home purchase, a measure to support housing demand and the healthy development of the country’s property market. . ING analysts are expecting a 1% contraction in economic growth in the second quarter compared to a year ago, while Nomura said the Chinese economy has been facing a growing risk of a recession since mid-March.

Capital Economics is now forecasting full-year Chinese growth of only 2%, and says there is no guarantee that even if Kovid is not controlled. “Even once the current virus wave is eliminated, Covid controls will block some activity for the coming quarter,” it said in a note on Friday.

Although policymakers have repeatedly promised more support for a slower economy, the stimulus has so far been “inhabited”, with only a small policy rate reduction, it added. China’s central bank on Monday kept interest rates unchanged for the fourth month in a row, focusing on medium-term policy maturity.

The NIE said that due to concerns over rising US interest rates and the devaluation of the Chinese currency, authorities would be wary of taking drastic measures such as large interest rate cuts or a ratio of bank reserve requirements to stimulate the economy. Will be done.