China’s economic activity cooled sharply last month as widening COVID-19 lockdowns took a heavy toll on consumption, industrial production and employment, adding to fears that the economy could shrink in the second quarter.
Full or partial lockdowns were imposed in dozens of cities in March and last month, including a protracted shutdown in commercial center Shanghai, keeping workers and shoppers confined to their homes and severely disrupting supply chains.
Retail sales last month shrank 11.1 percent from a year earlier, the biggest contraction since March 2020, data from the Chinese National Bureau of Statistics showed yesterday, and worse than forecast.
Dining out services were suspended in some provinces, which led to a 22.7 percent drop in catering revenue last month, while China’s auto sales plunged 47.6 percent from a year earlier as automakers slashed production amid empty showrooms and parts shortages.
As the disease prevention measures snarled supply chains and paralyzed distribution, industrial production fell 2.9 percent from a year earlier, below expectations of 0.4 percent growth. The reading was the largest decline since February 2020.
In line with the decline in industrial output, China last month processed 11 percent less crude oil than a year earlier, with daily throughput falling to the lowest since March. The country’s power generation last month fell 4.3 percent from the previous year, the lowest since May 2020.
The shock also weighed on the job market, which Chinese leaders have prioritized for economic and social stability. The nationwide survey-based jobless rate rose to 6.1 percent from 5.8 percent in March, the highest since February 2020 when it stood at 6.2 percent.
The government aims to keep the jobless rate below 5.5 percent this year.
Fixed asset investment, a main driver that Beijing is counting on to prop up the economy as exports lost momentum, increased 6.8 percent year-on-year in the first four months, less than an expected 7 percent rise.
The extended lockdown in Shanghai and prolonged testing in Beijing are adding to the concerns about economic growth for the rest of the year, Hwabao Trust Co (華寶信託) economist Nie Wen (聶文) said in Shanghai.
“It’s still possible to achieve a GDP growth of around 5 percent 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,” Nie said.
China’s financial authorities on Sunday said that they would allow banks to cut the lower limit of interest rates on home loans based on the corresponding tenor of the loan prime rate for first home purchases, a move to support housing demand and promote healthy development of the country’s property market.
ING Groep NV analysts are looking for a 1 percent contraction in economic growth in the second quarter from a year earlier, while Nomura Holdings Inc said the Chinese economy has been facing a increasing recession risk since mid-March.
Capital Economics Ltd is now forecasting full-year Chinese growth of just 2 percent, and said if COVID-19 cannot be controlled even that is not guaranteed.
China’s central bank yesterday rolled over maturing medium-term policy loans while keeping the interest rate unchanged for a fourth straight month.
Nie said authorities would be cautious in rolling out quantitative measures such as large-scale cuts to interest rates or banks’ reserve requirement ratios to spur the economy, given concerns about US interest rate hikes and a depreciating Chinese currency, but structural and targeted measures, such as in the property sector, would be preferred.
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