China’s economic growth slumped in the second quarter to levels not seen since early 2020, an AFP poll of analysts showed, amid painful Covid lockdowns and ongoing weakness in the real estate sector.
Leaders of the world’s second-largest economy remain firmly committed to a zero-Covid approach of weeding out clusters as they emerge, but the fallout has sapped growth and put policymakers’ annual target of around 5.5 percent out of reach.
The slowdown comes after the country’s biggest city, Shanghai, went into a two-month lockdown over a resurgence of the virus – scrambling supply chains and causing factories to close – while dozens of others struggled with tightened rules to combat local outbreaks.
According to the AFP survey of experts from 12 financial institutions, gross domestic product grew by an estimated 1.6 percent year-on-year in April-June.
Several analysts expect the economy will contract on a quarterly basis – a first since 2020 at the height of the pandemic.
Activity in both services and manufacturing fell in April and May, according to key indicators, Rabobank senior macro strategist Teeuwe Mevissen said.
China’s real estate sector, a key economic engine, is also “still in limbo” while lockdowns have hit supply and demand hard, he told AFP.
New home sales for the top 100 developers fell 43 percent year-on-year in June, according to data from China Real Estate Information Corporation, with analysts from Nomura adding that subway passenger rides in major cities remained below 2021 levels.
China has only seen GDP contraction once in the last few decades, and analysts expect the latest figure will drag full-year growth to about 4 percent, beating previous estimates.
Economists have long questioned the accuracy of official Chinese data, suspecting numbers are being massaged for political reasons.
And Friday’s official release will be closely watched as the Communist Party prepares for its 20th Congress, where Xi Jinping is expected to receive another five-year term as president.
– Zero Covid vs Growth –
China’s policymakers want both zero-Covid and growth, a goal made clear during the April Politburo meeting, Macquarie economist Larry Hu said in a recent report.
Authorities have promised efforts to meet this year’s target, a target Xi reiterated last month, and leaders are likely to “decide whether to double down or withdraw” in July, Hu said.
“Rhetorically, it’s unlikely that policymakers will drop the ‘zero-Covid’ name any time soon. Even so, they could still redefine ‘zero Covid’ to make it less and less disruptive to the economy,” he added.
Last Thursday, Premier Li Keqiang said the fundamentals of China’s recovery were “still unstable” and called for more work to stabilize the economy.
And “multiple uncertainties” also surround the recent recovery, ANZ Research said in a report.
Alongside unexpected Covid outbreaks that could lead to further restrictions on movement, “a slowdown in the US economy and Fed rate hikes could cloud prospects for China’s exports,” ANZ added.
Domestically, consumer inflation climbed to a two-year high in June as pork prices soared, official data showed on Saturday, threatening relative stability from a global rise in food prices.
China’s economy has started to recover after lockdown restrictions were lifted in Shanghai from June 1, said Tommy Wu, senior economist at Oxford Economics.
But even if future outbreaks are less disruptive as authorities refine their strategies, “pressure on consumption is likely to continue,” he added.
This week, an association of the automotive industry revised its sales forecast for 2022 downwards due to weaker demand.
“Consumer sentiment is unlikely to turn optimistic as strict mobility restrictions are imposed even if the number of Covid cases is very low in a small neighborhood,” Wu added.
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