China’s GDP growth exceeded expectations, but lockdown weighs on expectations

China’s economy expanded faster than expected in the first quarter, but official data revealed a recent contraction in consumer activity as widespread Covid-19 lockdowns cast a shadow over the country’s growth outlook.

China’s GDP increased by 4.8 percent compared to the same period the previous year, then 4% expansion in the last three months of 2021. On a quarterly basis, GDP grew 1.3 percent.

Analysts expected gains of 4.4 percent year-on-year and 0.6 percent quarter-on-quarter as the Covid-19 outbreak increased, prompting authorities to largely shut down. Shanghai, the country’s financial center.

Retail sales, a measure of consumer spending, fell 3.5 percent in March – their first annual decline since July 2020 and worse than an expected 1.6 percent drop – as authorities tightened restrictions to tackle the country’s worst outbreak of the coronavirus in more than one year. of two years. In the same month, the official unemployment rate rose to 5.8 percent, the highest level since May 2020.

The data will increase pressure on President Xi Jinping’s government, which has reaffirmed its commitment to a zero-Covid-19 policy despite rising costs and disruption across the country’s largest cities.

The shutdowns came at an unstable moment for the Chinese economy in the wake of the debt crisis in the real estate sector and an even greater loss of momentum. The government has targeted growth of 5.5 percent in 2022, the lowest level in three decades.

“The operation of the economy has been generally stable” but noted “recurrent outbreaks” of Covid-19 in China and an “increasingly dangerous and complex international environment,” said Fu Lingwei, a spokesman for the National Bureau of Statistics.

“The country is facing repeated waves of the epidemic in many places and its impact on the economy is increasing,” he said.

The first three months data won’t show the full extent of recent events in Shanghai, which has plagued China since late March The most severe closures in the city Since the emergence of the Corona virus in Wuhan. Analysts at Nomura estimated last week that 45 cities responsible for about 40 percent of China’s gross domestic product were under full or partial lockdown, and added that the country was in “risk of recession.”

Tommy Wu, chief China economist at Oxford Economics, suggested that the 4.8 per cent increase in GDP “mainly reflects the growth observed in official data from January to February before economic activities weakened in March”.

“The central government is now trying to strike a balance between reducing disruption and controlling the latest wave of Covid infections, but the disruption is likely to last for weeks and will affect activity in April and May, if not longer,” he added.

In contrast to the sudden weakness in consumer spending, industrial production, which was a big driver of China’s initial recovery from the epidemic in 2020, added 5 percent year on year in March. Investment in fixed assets increased by 9.3 percent in the first three months of 2022 compared to the same period last year.

Even before the spread of the highly contagious variant Omicron, the Chinese economy had been hit by a real estate crisis centered on Indebted developer Evergrande spread across the real estate sector.

And in a sign of the continuing effects of that crisis, new homebuilding for apartments fell 20 percent in the first three months of the year. Steel and cement production declined by 6 and 12 percent, respectively, in the same period.

In addition to the low annual growth target, the government also embarked on monetary easing, which included Reduce critical lending rates For the first time since 2020, despite previous efforts to reduce leverage.

Friday, the People’s Bank of China Reducing the reserve requirement ratio to banks by 25 basis points in an attempt to inject liquidity into the financial system.

Xi, who this year is seeking an unprecedented third term in power, has promoted a “shared prosperity” campaign designed to reduce inequality. But the lockdown measures are now dominating the country’s economic trajectory and causing concern supply chain disruptions.

Li Keqiang, China’s prime minister, has repeatedly warned in recent weeks of economic risks, after Xi warned in March of the need to reduce the economic impact of Covid policies.

The CSI 300 index of shares listed in Shanghai and Shenzhen fell about 1 percent after the data was released. Banks were among the worst performers as lenders faced the possibility that easing policy to soften the economic hit of the shutdowns could hurt profits.

“We certainly think that Chinese policy makers are ready to make sure that they reach their growth targets,” said Jean Charles Sambor of BNP Paribas Asset Management.

Additional reporting by Mikey Ding in Beijing