China’s economy grew faster than expected in the first quarter, but official figures revealed that consumer activity has recently begun to decline as large-scale blockades of Covid-19 have had an impact on the country’s growth.
The figures will put more pressure on President Xi Jinping’s government, which has reaffirmed its commitment to zero Covid policies despite rising costs and disruptions in the country’s largest cities.
China’s data came after the World Bank on Monday lowered its forecast for global growth for 2022 by almost 1 percentage point to 3.2% from 4.1%, pointing to Russia’s invasion of Ukraine.
As spring IMF and World Bank meetings with finance ministers and central bankers began on Monday, World Bank President David Malpas said food and energy price spikes would lead to lower growth worldwide – hit hardest in Europe and Central Asia.
The IMF has also warned countries, including China, that large amounts of private debt accumulated during the pandemic – mainly by low-income companies and households – are likely to significantly slow recovery in the coming years.
The first signs of a slowdown in China were evident in retail sales, which fell 3.5% in March from a year earlier as authorities introduced strict new antivirus controls. The downturn dampened China’s gross domestic product by 4.8 percent in the first quarter, beating expectations of a 4.4 percent increase. On a quarterly basis, GDP grew by 1.3 percent.
Shanghai, the country’s financial center, has been largely closed for weeks, the most striking example of a new wave of blockades that originally included the Shenzhen manufacturing center and cities in the northeastern province of Jilin last month.
The blockade came at a precarious moment for the Chinese economy after a debt crisis in the real estate sector and a greater loss of momentum. The government has set a target of 5.5% growth in 2022, the lowest annual rate in three decades.
Tommy Wu, a leading Chinese economist at Oxford Economics, said the increase in GDP “mainly reflects the growth seen in official data for January-February before the weakening of economic activity in March.”
Fu Linghui, a spokesman for the National Bureau of Statistics, said “the economy as a whole is stable”, but pointed to Covid’s “frequent outbreaks” in China and the “increasingly difficult and complex international environment”.
China’s official unemployment rate rose to 5.8 percent last month, its highest level since May 2020.
In contrast to the sudden weakness in consumer spending, industrial production, which was a major driver of China’s initial recovery from the 2020 pandemic, added 5% year-on-year in March. Investments in fixed assets increased by 9.3% in the first three months of 2022 compared to the same period last year.
The IMF warned on Monday that the accumulation of private debt around the world will act as a barrier to growth, as households and companies give priority to paying interest and reducing the amount due, rather than spending and investing.
He predicts that over the next three years, reducing debt will cut 0.9% of GDP in developed economies and 1.3% of output levels in emerging markets.
Although much wealthier consumers saved money during the blockade, the pandemic forced lower-income households to take on more debt. Total private debt increased by 13 percentage points of GDP in developed economies and almost as much in China during the pandemic, the fund said.
Recommended
Stopping growth would be most severe in countries that have increased debt in underperforming sectors, where governments are also trying to cut loans, where interest rates are rising rapidly and where there are no inefficient insolvency regimes.
Even before the Chinese outbreak of the highly contagious Omicron option gained momentum, the country’s economy was hit by a real estate crisis focused on the indebted entrepreneur Evergrande, which spread to the real estate sector.
As a sign of the lasting effects of this crisis, the start of new housing for apartments decreased by 20% in the first three months of the year. Steel and cement production fell by 6% and 12% respectively over the same period.
The government has lowered official growth targets as it began easing monetary policy, which includes cutting important interest rates on loans for the first time since 2020, despite previous pressure to reduce leverage.
The People’s Bank of China on Friday reduced the reserve ratio for banks by 25 basis points in an attempt to inject liquidity into the financial system.
Si, who is seeking an unprecedented third term in office this year, is promoting a campaign for “common prosperity” designed to reduce inequality. But blocking measures are now dominating the country’s economic trajectory and have fueled global concerns about supply chain disruptions.
Li Keqiang, China’s prime minister, has repeatedly warned in recent weeks about economic risks, following a warning from Xi in March about the need to minimize the economic impact of Covid’s policies.
The CSI 300 index of shares registered in Shanghai and Shenzhen fell about 1% on Monday after the data was released. Banks were among the worst performers, as creditors faced the prospect that easing a policy to mitigate the economic blow of the blockade could hurt profits.
“We definitely think Chinese politicians are ready to make sure they achieve their growth goals,” said Jean-Charles Sambor of BNP Paribas Asset Management.
Additional reports from Hudson Lockett in Hong Kong and Mikey Ding in Beijing
Video: Evergrande: the end of the property boom in China
Add Comment