Is China’s Economy At A Downfall?

Is China’s Economy At A Downfall?

China’s economic statistics for April were disappointing, highlighting the country’s substantial damage as a result of Covid lockdowns.

Retail sales and industrial production in the world’s second-largest economy dropped dramatically, far below market estimates. According to China’s National Bureau of Statistics Monday, retail sales in April were down 11.1% from a year ago. This was far lower than the 6.1% reduction predicted by economists in a Reuters poll, as well as the 3.5% drop projected in March. So, is China’s economy really at a downfall or is it temporary?

Last month, industrial production dipped 2.9% from a year ago, reversing a 5% increase in March. This is the sharpest drop in industrial output since February 2020, when China’s economy ground to a halt due to the initial coronavirus pandemic.

Unemployment also reached its second-highest point in history. In April, the urban unemployment rate rose to 6.1%, up from 5.8% in March, which was already a 21-month high. Only in February 2020 was China’s unemployment rate greater.

Following the disappointing report, Asian stock markets struggled to gain ground. The Hang Seng (HSI), Shanghai Composite (SHCOMP), and Korea’s Kospi (KOSPI) all lost ground after beginning higher, falling between 0.3 and 0.5%. 

China’s economy got off to a strong start in 2022, with a first-quarter growth rate of 4.8 per cent.

However, Beijing’s attempts to control the country’s greatest Covid pandemic in two years have slowed activity significantly since March. According to CNN’s latest figures, at least 31 cities throughout the country are still under complete or partial lockdown. For more than six weeks, Shanghai, the country’s financial and manufacturing capital, has been under siege. Many businesses, particularly Tesla (TSLA) and Volkswagen, as well as iPhone manufacturer Pegatron, have been forced to shut down at this time.

On Monday, Zhiwei Zhang, president and chief economist at Pinpoint Asset Management, said “We think Q2 GDP growth will likely turn negative,” Zhang also said, “The government faces mounting pressure to launch new stimulus to stabilize the economy,”

China’s government is aware of the country’s economic difficulties and has lately taken moves to alleviate them. The People’s Bank of China stated on Sunday that it will lower mortgage rates for first-time homebuyers in an effort to boost the country’s struggling housing market. Separately, the Shanghai administration announced that starting Monday, the city will progressively open stores, restaurants, and salons, providing respite to the city’s 25 million citizens. The government has also lately vowed to promote small firms by increasing infrastructure expenditure and targeting monetary easing.

“The risks to the outlook are tilted to the downside, as the effectiveness of policy stimulus will largely depend on the scale of future Covid outbreaks and lockdowns,” said Tommy Wu, lead China economist for Oxford Economics. He also mentioned, “we forecast GDP to grow 4% this year, with a quarterly contraction in the second quarter before returning to growth in the second half.”

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