China’s economy slips as shutdowns hit factories and retailers

  • April industrial production unexpectedly fell on an annual basis
  • April retail sales fall faster than expected
  • Highest unemployment rate nationwide since February 2020
  • Fixed asset investment growth is slower than f’cast

BEIJING (Reuters) – China’s retail and factory activity fell sharply in April as widespread COVID-19 lockdowns confined workers and consumers to their homes and severely disrupted supply chains, casting a long shadow over the outlook for the world’s second largest economy. . .

Full or partial closures were imposed in major centers across the country in March and April, including the most populous city Shanghai, increasing production and consumption and raising risks for those parts of the global economy that rely heavily on China.

Data from the National Bureau of Statistics showed on Monday that retail sales contracted 11.1 percent from a year earlier in April, the largest contraction since March 2020, in a sharper decline than expected in a Reuters poll.

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Factory output fell 2.9% from a year earlier, smashing expectations for a rise and the biggest drop since February 2020, as anti-virus measures crippled supply chains and crippled distribution.

Analysts are now warning that the current downturn in China may be more difficult to undo than the downturn seen during the onset of the coronavirus pandemic in early 2020, as exports are unlikely to swing higher and policymakers limit their stimulus options.

“The upshot is that while we hope the worst is over, we believe China’s economy will struggle to return to its pre-epidemic trend,” Capital Economics analysts said.

The weak data sent China’s preferred stock index (.CSI300) into the red in a sharp reversal of morning gains and put an end to the short rally seen in other Asian markets on Monday. Read more

Industrial production around the Yangtze River Delta, including Shanghai, fell 14.1% in April, while industrial production in northeast China contracted 16.9%. Both regions saw a 30% drop in retail sales.

Coinciding with the unexpected drop in industrial production, China processed 11% less crude oil in April, with the lowest daily productivity since March 2020. In the same month, power generation fell 4.3%, the lowest level since May 2020. Read more

“In April, the epidemic had a relatively large impact on the economic process, but this effect was short-term and extrinsic,” Fu Lingwei, a spokesman for the China Statistics Bureau, said at a press conference in Beijing on Monday.

Fu said he expects the economy to improve in May with outbreaks of COVID-19 in Jilin, Shanghai and other places under control.

Fixed-asset investment, which Beijing relies on to prop up the economy as exports lose momentum, rose 6.8% in the first four months, compared to an expected increase of 7.0%.

Consumption, multiplying employment

The data showed a 22.7% drop in catering revenue in April, as catering services were suspended in some counties. Auto sales fell 47.6% as automakers cut production amid empty showrooms and a shortage of parts.

Property sales by value fell 46.6% from a year earlier, the fastest pace since at least 2010, as the COVID-19 lockdown cooled demand. Read more

Fearing weakness, economists advocated cash assistance from the government to the population.

The coronavirus shock has also affected the labor market, which is now seen as a top political priority for Beijing to maintain economic and social stability. China’s survey-based unemployment rate rose to 6.1% in April, the highest level since February 2020 and above the government’s 2022 target of less than 5.5%.

far goals

Analysts say China’s official growth target of 5.5% in 2022 appears to be getting harder and harder to achieve as officials maintain strict policies to prevent the spread of the coronavirus. The economy grew 4.8% in the first quarter.

An extended lockdown in Shanghai and prolonged testing in Beijing add to concerns about growth for the rest of the year, said Ni Wen, Shanghai-based economist at the Hwabao Trust.

“GDP growth of around 5% could still be achieved this year if the COVID restrictions were to only affect the economy in April and May. But the virus is very contagious, and I remain concerned about future growth.”

Ni said authorities would be cautious in implementing quantitative measures such as broad cuts to interest rates or bank reserve requirements to stimulate the economy, given concerns about the US Federal Reserve’s rate hike and the devaluation of the Chinese currency. Structural and targeted measures for troubled sectors such as ownership will be used instead.

In a sign of continued support, China’s central bank renewed maturing medium-term loans on Monday, but kept the rate of these loans unchanged for the fourth consecutive month.

Analysts at ANZ said the impact of the Shanghai shutdown is far-reaching.

“With total factory productivity not catching up, China’s growth is likely to remain at the lower end of the 4.0-5.0% range in the next few years,” ANZ said.

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(Reporting by Kevin Yao, Stella Keogh, Elaine Zhang and Ryan Wu; Editing by Bernard Orr, Jacqueline Wong and Sam Holmes

Our Standards: Thomson Reuters Trust Principles.

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