Growth in China is recovering despite the shocks from Covid

published on Monday, April 18, 2022 at 08:34

China on Monday announced a rebound in its first-quarter growth of 4.8% over a year, despite “significant challenges” for the economy at a time when containment measures in Shanghai are severely affecting activity.

While caution is warranted, the official figure for China’s gross domestic product (GDP) is still under scrutiny, given the country’s weight in the global economy.

This increase was generally expected. However, a group of analysts polled by AFP expected a more moderate recovery (4.3%). In the fourth quarter of 2021, the country’s GDP had grown by 4% year-on-year.

The Chinese economy is facing “significant challenges,” a senior economics official admitted at a press conference. Quarter-over-quarter, the Asian giant’s growth is up just 1.3%, a slower rate than the October-December period (1.6%).

China, which had largely brought Covid-19 under control for two years, has been facing the worst outbreak of the epidemic since last month.

Tens of millions of Chinese were trapped in the tech hub of Shenzhen (south) in March and are still sitting in the northeast of the country, the cradle of the auto industry, as well as in Shanghai, the country’s economic capital.

Unlike many countries that choose to coexist with the virus and lift restrictions, China continues to pursue a zero-Covid policy.

– Consumption in the red area –

These measures, which seriously affect transport and supply chains, have led to the closure of many companies.

These difficulties came on top of those already weighing on the Chinese economy in recent months: sluggish consumption, tighter regulations in several sectors such as real estate and technology, and uncertainties surrounding Ukraine.

In March, retail sales, the main indicator of household spending, fell 3.5% yoy, the sharpest drop since April 2020, when the Asian giant was just emerging from the first wave of the crisis.

March’s restrictions have “hit hard” on consumer spending, particularly in shops and restaurants, analyst Rajiv Biswas of IHS Markit (S&P Global) told AFP.

The impact of April’s detention in Shanghai will be “significant” on consumption, Mr Biswas warns, arguing that its residents have the highest disposable income in China.

Industrial production, for its part, rose by just 5% last month versus 7.5% in the first two months of the year.

The unemployment rate rose to 5.8% in March from 5.5% in January and February.

Specially monitored by the authorities and only calculated for city dwellers, the unemployment rate had reached an all-time high of 6.2% in February 2020, at the height of the epidemic, before falling.

Fixed investment growth slowed to 9.3% in the first three months of the year, down from 12.2% at the end of December, according to the SNB.

– “Headwind” –

The impact of the restrictions on the economy is “probably underestimated” by the numbers released on Monday, observes Capital Economics analyst Julian Evans-Pritchard, who says he is “surprised” by the resilience of growth.

In any case, the April numbers will be poor due to logistical disruptions, which will weigh on second-quarter GDP, he said.

Beijing has targeted growth of “around 5.5 percent” for this year, which would be the weakest rate for China since the early 1990s, barring 2020, which was marked by the first wave of Covid.

Given the context, that goal now seems “out of reach,” economist Larry Hu of Australian wealth manager Macquarie said in a note.

“China faces several headwinds, including Covid-related lockdowns and (a slowdown in) the real estate sector,” Hu noted.

The setbacks of the promoter Evergrande, which was on the verge of bankruptcy, affected the entire industry.

Real estate and construction, which account for more than a quarter of the country’s GDP, had played a key role in the post-pandemic recovery in 2020.

The current situation is in stark contrast to last year: China recorded an 18.3% growth spurt in the first quarter, due to a catch-up effect compared to 2020, when Covid-19 had paralyzed the economy.

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