Stay-At-Home Orders And Closed Factories Have Slowed Business
Last month, China's economy fell deeper into a Covid-19-induced slump, raising concerns about China's ability to cushion the hit using fiscal and monetary policy instruments.
- Retail sales and industrial production plummeted by 11.1% and 2.9% year over year respectively
- Mining and utility companies increased their output while manufacturing declined by 4.6% due to a downturn in the car industry and equipment manufacturing
- Passenger car output fell 41.1% year over year according to the China Passenger Car Association
China's National Bureau of Statistics stated: “[The] increasingly grim and complex international environment and greater shock of [the] Covid-19 pandemic at home obviously exceeded expectation, new downward pressure on the economy continued to grow,”. The bureau added that the economy “is expected to stabilize and recover.”
Unemployment Rate On The Rise And Real Estate Slumping
China's headline unemployment rate hit a two-year high of 6.1%, demonstrating the economic harm caused by the country's toughest pandemic control efforts in more than two years.
- Chinese Premier Li Keqiang recently called the country's job condition as "complicated and grim"
- The government is keeping his unemployment rate target below 5.5% for the entire year
Meanwhile, fixed-asset investment, which includes infrastructure and real-estate projects, grew 6.8% year over year in the first four months of the year, down from 9.3% in the first quarter.
- April new-home starts and house sales by value were down 44% and 47% from a year ago, respectively, worsening March's decline
- Economists believe China's high-growth property market may be a thing of the past, with the industry likely to be "changed forever" following the recent turmoils
- S&P stated in April: “We anticipate fewer developers will be able to employ the highly leveraged, fast-churn strategy that brought past success.”
Problematic Growth And Inflation Below Target
Official statistics released last week showed China's consumer-price index rose 2.1% from a year ago in April, the quickest rate in five months and up from 1.5% in March. The gain was driven by rising food and gasoline prices as well as a persistent rise in global commodity prices.
Despite the increasee, inflation is still running below the target rate for the year of less than roughly 3%.
- The Chinese government has long been concerned about growing inflation, which has traditionally been a cause of political unrest
- They may be especially keen to keep the economy steady this year, since President Xi Jinping is expected to a third term in office
While China's lockdowns and other Covid restrictions have driven up inflation in the short term, many economists believe they will have a deflationary effect in the long run by lowering consumer spending.
Shuang Ding, chief China economist at Standard Chartered Bank: “China’s biggest problem is weak growth instead of inflation, [...] That’s the opposite to the situation in the U.S.”
A 2020-Like Rebound ?
Citigroup lowered its second-quarter gross domestic product growth prediction to 1.7% from 4.7%, and its full-year forecast to 4.2% from 5.1%.
Goldman Sachs' analysts followed by reducing their China GDP projection to 4% from 4.5%.
As the situation worsens, a group of Chinese economists and academics spoke out calling for more robust governmental responses.
“We’ve reached a point where we should use policies to save the economy at all costs,” said Huang Yiping, an economics professor at Peking University and a former central-bank adviser
According to Zhaopeng Xing, senior China strategist at investment bank ANZ, China's economy has two obstacles:
- The capacity for monetary easing is shrinking
- Business and consumer confidence is weakening
Furthermore, the transmissibility of the Omicron variant makes a fast comeback like the one that followed Wuhan's shutdown in 2020 almost unthinkable.
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