China GDP: Q2 2022 records slowest growth since COVID in 2020

GDP expansion in the world’s second largest economy Just 0.4% in the three months to June 30, compared to the same period last year, according to the National Bureau of Statistics on Friday.

That was well below the 4.8 percent increase in the previous quarter and well below the 1 percent growth that economists had expected in a Reuters poll. On a quarterly basis, GDP contracted 2.6%.

was the weakest performance Since the first quarter of 2020, when the Chinese economy came to a near standstill as it struggled to contain the initial coronavirus outbreak that began in Wuhan. In that quarter, GDP contracted 6.8%.

In the first half of this year, the economy expanded by 2.5%, well below the 5.5% annual target set by the government. Beijing admitted on Friday that achieving GDP targets this year will be difficult.

“There are challenges “To achieve our expected full-year economic growth target,” Fu Lingwei, a spokesman for the National Bureau of Statistics, said at a press conference in Beijing, but he expected the economy to rebound in the second half.

Barriers from recent Covid-related lockdowns block an entrance leading to the Fengming Haishang residential development for Country Garden Holdings in Shanghai, China, Tuesday, July 12, 2022.

Challenges escalate

Chinese policymakers face growing challenges to keep growth stable, as the country grapples with a sharp slowdown in activity due to Beijing’s tough non-spreading COVID-19 policy, a crackdown on the private sector and a property crisis that is causing bad debts to rise in China. Banks and growing social protests.
Since March, Beijing’s tough stance on stamping out the virus has led to months of lockdown in dozens of cities across the country, including Shanghai, the country’s financial and shipping hub. Millions of residents were confined to their homes, stores and restaurants closed, and factories closed, hurting consumer activity and disrupting supply chains.
Authorities began reopening the economy at the beginning of last month, lifting restrictions in some major cities. Manufacturing and services industries have shown signs of improvement in recent weeks. But Beijing’s adherence to a zero-Covid stance has caused great uncertainty for businesses and dampened investor sentiment. Consumer spending remains weak, while the labor market is under great pressure – youth unemployment hit a new record high of 19.3% in June.
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Fu said at a news conference on Friday that the economy had been hit “unexpectedly and severely” from both internal and external factors.

Rising global commodity prices, especially food and energy prices, have increased imported inflation. Fu said the risks of stagflation around the world also threaten China’s economic stability.

Chuping Chu, global market analyst at JPMorgan Asset Management in Shanghai, said the weak performance in the second quarter “reflects the significant shocks from the Omicron outbreak and the corresponding stringent measures adopted in major cities.”

“Looking ahead, we expect to see a sustained economic recovery in the second half of this year, primarily supported by government-led infrastructure investments,” he said, adding that if the government eases Covid restrictions further, it could lead to an increase in consumer confidence. Faster recovery.
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But Chu said the real estate sector may still pose downside risks to growth.

Larry Hu, Macquarie Group’s chief China economist, said the latest data suggests GDP growth must accelerate to more than 7% in the second half to achieve 5% annual growth for the full year.

“This is impossible without a significant escalation of stimulus policy from the current level,” he said.

Property stagnation swings

There were some bright spots in the economic data on Friday.

The mining and industrial sector recorded a growth of 0.9% compared to the second quarter of last year. And retail sales in June grew 3.1% from a year ago, buoyed by a jump in car sales fueled by pent-up demand and policy support for electric vehicles. Industrial production also rebounded in June, up 3.9% from a year ago.

But the vast real estate sector is still a major handicap.

Real estate investment fell 9.4% in June from a year ago, after falling 7.8% in May, according to Macquarie Capital calculations based on government data. Property sales by floor area fell 18% last month, after a 32% drop in May.

Chinese homebuyers refuse to pay mortgages on unfinished apartments

“The drop in sales means developers are facing a liquidity crunch,” Hu said.

He added that “the scourge of real estate is causing an escalation of social instability, as evidenced by the recent mortgage boycott.”

Over the past few days, desperate homebuyers in dozens of cities have refused to pay mortgages on unfinished homes. The repayment boycott comes as a growing number of projects are delayed or halted due to a liquidity crunch that has seen developer giant Evergrande default on its debts last year and many other companies are seeking protection from creditors.

Chu of JPMorgan Asset Management said the growing number of unfinished homes poses a significant risk to the financial health of banks.

“Decisive and effective regulatory measures must be taken to prevent the mortgage boycott from developing into systemic risks,” he said.

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