Posted on April 18, 2022 at 11:15 amUpdated at 5:31 pm on April 18, 2022
A timid glow on the darker horizon. China’s economy grew 4.8% year-on-year in the first quarter, according to data released by Beijing on Monday. This higher-than-expected figure reflects the recovery of the world’s second-largest economy in the first two months of 2022. However, some of China’s economic lungs, including Shanghai, have masked the significant downturn that began in March when it was blocked. The name of the “Zero Covid” policy.
Looking at them monthly, China’s data is worrisome. Analysts at Nomura said, “March activity has skyrocketed as the economy has been hit by the worst Covid-19 outbreak since the first wave of winter 2020.” I will propose. “
Retail sales declined significantly
Retail sales, a key indicator of household spending in March, fell 3.5% year-on-year, the largest decline since April 2020, when Asian giants began to emerge from the first wave of the crisis. Imports fell in March for the first time in over a year. Similarly, exports are slowing and manufacturing production is slowing (+ 7.5% in January-February vs. + 5% in March).
Real estate, which is a pillar of the Chinese economy, continues to decline like hell. “After the stability at the beginning of the year, epidemics weighed on housing demand, and last month’s new home sales fell to their lowest levels in two years,” said Julian Evans Pritchard of Capital Economics. Housing starts fell another 20% in the first quarter.
Economists agree on one thing: the worst hasn’t come yet. In March, just witnessing the blockade of Shanghai began, starting from a total of once a monther April. This strict containment that followed Shenzhen, known as “Silicon Valley of China,” not only stagnated the country’s largest city, but also caused monster disruption in the supply chain and closed factories. It is supplied by the supplier and can be delivered to the customer. Needless to say, the recurrence of Covid-19 puts strict restrictions on mobility in many areas.
“The economy is in dire straits,” warns Societe Generale Weiyao. “April data should be even worse,” continues a colleague at Capital Economics. Some economists no longer deny the decline of China’s economy in the spring. “The risk of a recession increases in the second quarter,” Nomura warns. “Domestic activity is plummeting,” said the boss of the French industrial group in Shanghai. We are having a hard time delivering to our customers and they are no longer delivering to our customers. The project has been postponed. »»
The biggest economic shock of the year
When China slows, the entire world economy is at stake. “China’s’zero corona’policy will be the biggest economic shock of the year,” warned Natixis chief Asian economist Alicia Garcia Erero last week. The image of the blockade in Shanghai is certainly not as ominous to Western observers as the war in Ukraine, but the negative impact on the global economy could be even greater. And remember that China exports one-third of the intermediate goods consumed in the world.
China’s prime minister, Li Keqiang, has repeatedly warned of economic risks in recent weeks.The priority is the stability of the Chinese Communist Party administration, and its leader Xi Jinping is preparing for the third term on the occasion of XX.When Communist Party Congress in the fall. Beijing has set a goal of increasing GDP by “about 5.5%” this year, but many economists are skeptical and have low growth forecasts.
“We expect growth-supporting macroeconomic reactions to increase in the second quarter, but if liquidity remains limited, the impact will be limited,” said Tommy Wu of Oxford Economics. Stated. On Friday, the People’s Bank of China (PBoC) announced that it would reduce the bank’s reserve requirement ratio by 25 basis points for the first time this year. Measures considered disappointing, a sign that Beijing is not yet ready to pull out heavy artillery to save its economy.