Widespread COVID-19 lockdowns confined workers and customers to their homes and significantly disrupted supply lines in April, casting a long shadow over the world’s second-largest economy.
In March and April, full or partial lockdowns were imposed in key cities across the country, including Shanghai, the most populous metropolis, affecting production and consumption and raising dangers for those areas of the global economy that are strongly reliant on China.
Retail sales in April fell 11.1 percent from a year earlier, the most since March 2020, according to data released by the National Bureau of Statistics (NBS) on Monday, a sharper drop than predicted in a Reuters poll.
Anti-virus measures snarled supply chains and paralysed distribution, causing factory production to fall 2.9 per cent from a year ago, shattering hopes for an increase and marking the worst drop since February 2020.
Analysts now warn that China’s current slump would be more difficult to overcome than the one that occurred when the coronavirus outbreak broke out in early 2020, with exports unlikely to rebound and authorities’ stimulus options limited.
“The upshot is that while the worst is hopefully over, we think China’s economy will struggle to return to its pre-pandemic trend,” Capital Economics analysts said.
The disappointing report plunged China’s blue-chip stock index into the red, reversing morning gains and putting a stop to a brief surge in other Asian markets on Monday.
In April, industrial output in the Yangtze River Delta, which includes Shanghai, declined 14.1 per cent, while it fell 16.9 percent in China’s northeast. Retail sales dropped by more than 30 per cent in both regions.
China processed 11 per cent less crude oil in April, the lowest daily throughput since March 2020, in keeping with the unexpected drop in industrial activity. Power generation declined 4.3 per cent in the same month, to its lowest level since May 2020.
“In April, the epidemic had a relatively big impact on the economic operation, but this impact was short-term and external,” Fu Linghui, a spokesperson at China’s statistics bureau, said at a press conference in Beijing on Monday.
With COVID-19 outbreaks in Jilin, Shanghai, and other places under control, Fu expects the economy to rebound in May.
Fixed asset investment increased 6.8 per cent in the first four months, compared to a projected 7.0 per cent increase, which Beijing is banking on to keep the economy afloat as exports slow.
Dining-out services were banned in various areas, resulting in a 22.7 per cent decline in catering revenue in April. Automobile sales fell 47.6 per cent as automakers cut production amid empty showrooms and supply shortages.
Property sales fell 46.6 per cent year over year, the fastest drop since at least 2010, as COVID-19 restrictions stifled demand.
Concerned about the state of the economy, economists have proposed government cash transfers to the general public.
The COVID shock had a negative impact on the labour market, which is now considered as a top policy objective for Beijing in order to maintain economic and social stability. China’s jobless rate climbed to 6.1 percent in April, the highest since February 2020 and higher than the government’s objective of below 5.5 per cent for 2022.
Analysts say China’s claimed 5.5 percent GDP target for 2022 is becoming increasingly difficult to meet as officials maintain severe zero-COVID rules. In the first quarter, the GDP expanded by 4.8 per cent.
According to Nie Wen, a Shanghai-based economist at Hwabao Trust, the protracted lockdown in Shanghai and the prolonged testing in Beijing are contributing to concerns about growth for the rest of the year.
“It’s still possible to achieve a GDP growth of around 5% this year if COVID curbs are only going to affect the economy in April and May. But the virus is so infectious, and I remain concerned about growth going forward.”
Given concerns about U.S. Federal Reserve interest rate hikes and a sinking Chinese currency, Nie said authorities would be careful in implementing quantitative measures such as large-scale interest rate cuts or bank reserve requirements to stimulate the economy. Instead, structural and targeted actions would be applied in weak sectors like real estate.
China’s central bank rolled over maturing medium-term policy loans on Monday, but kept the rate on those loans steady for the fourth month in a row, indicating continuing support.
The impact of Shanghai’s shutdown, according to ANZ analysts, is far-reaching.
“With total factory productivity yet to catch up, China’s growth will likely stay at the low end of the 4.0-5.0% range in the next few years,” ANZ said.
(Adapted from EconomicTimes.com)
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