China’s growth slumps on virus lockdowns and housing issues: report
BEIJING (Reuters) – China’s economic expansion slumped in the second quarter to levels not seen since early 2020, according to an AFP poll of analysts, due to painful Covid lockdowns and the continued weakness in the real estate sector.
Leaders of the world’s second-largest economy remain firmly committed to a zero-Covid approach of eliminating clusters as they emerge, but the fallout has undermined growth and pushes policymakers’ annual target by around 5.5% out of reach.
The slowdown comes after the country’s largest city, Shanghai, was in lockdown for two months due to a resurgence of the virus – snarling supply chains and causing factories to close – while dozens more struggled with tougher rules to tackle local outbreaks.
Gross domestic product is estimated to have risen 1.6% year-on-year in April-June, according to AFP’s survey of experts from 12 financial institutions.
Several analysts expect the economy to contract on a quarterly basis – a first since 2020 at the height of the pandemic.
According to leading indicators, activity in the services and manufacturing sectors contracted in April and May, said Teeuwe Mevissen, Rabobank’s senior macroeconomic strategist.
China’s real estate sector, an important economic driver, was also “still in limbo”, while the shutdowns hit supply and demand hard, he told AFP.
New home sales for the top 100 developers fell 43% year-on-year in June, data from the China Real Estate Information Corporation showed, with Nomura analysts adding that subway passenger rides in major cities remained below 2021 levels.
China has recorded a contraction in GDP only once in recent decades, and analysts expect the latest reading to drag full-year growth to around 4%, slashing previous estimates. .
Economists have long questioned the accuracy of official Chinese data, suspecting the numbers are massaged for political reasons.
And Friday’s official release will be closely watched as the Communist Party prepares for its 20th Congress, when Xi Jinping is expected to be given another five-year term as president.
Chinese policymakers want both zero Covid and growth, a goal made clear at the April Politburo meeting, Macquarie economist Larry Hu said in a recent report.
Authorities have pledged efforts to meet this year’s target, a goal reiterated by Xi last month, and leaders “will likely decide to double down or back down” in July, Hu said.
“Rhetorically, policymakers are unlikely to abandon the name ‘zero-Covid’ anytime soon. That said, they could still redefine ‘zero-Covid’ to make it less and less disruptive to the economy,” he added.
Last Thursday, Premier Li Keqiang said the foundations of China’s recovery are “still unstable” and called for more work to stabilize the economy.
And “multiple uncertainties” also surround the latest rebound, ANZ Research said in a report.
Along with unexpected Covid outbreaks that could trigger more movement restrictions, “a slowing US economy and the Fed’s hike could cloud the outlook for Chinese exports,” ANZ added.
Domestically, consumer inflation soared in June to its highest level in two years as pork prices soared, official data showed on Saturday, threatening relative stability with a surge. global food prices.
China’s economy has started to recover after lockdown restrictions in Shanghai were lifted from June 1, Oxford Economics chief economist Tommy Wu said.
But even if future outbreaks are less disruptive as authorities refine their strategies, “pressure on consumption is likely to persist,” he added.
This week, an auto industry association lowered its sales forecast for 2022 due to weaker demand.
“Consumer sentiment is unlikely to turn optimistic as strict mobility restrictions will be imposed even when the number of Covid cases in a small neighborhood is very low,” Wu added.