Posted on April 18, 2022 at 11:15Updated on April 18, 2022 at 12:44 pm
A timid glow on an increasingly dark horizon. China’s economy grew 4.8% year-on-year in the first quarter, according to data released Monday by Beijing. Higher than expected, this figure reflects a recovery in the world’s second-largest economy in the first two months of 2022. But it masks a significant slump that began in March, when several economic lungs in China, including Shanghai, were blocked in the name of the “zero Covid” policy.
Looking at them month by month, the Chinese data is worrying. “March activity plummeted across the board as the economy was hit by the worst Covid-19 outbreak since the first wave of winter 2020”Nomura analysts point out, for whom “Real GDP growth could be much weaker than official Q1 data suggests”.
Retail sales fall sharply
In March, retail sales, the main indicator of household spending, fell 3.5% year-on-year, registering their biggest drop since April 2020, when the Asian giant was just beginning to emerge from the first wave of the crisis’epidemic . Imports fell in March for the first time in more than a year. Likewise, exports have slowed down and manufacturing production is decelerating (+5% in March compared to +7.5% in January-February).
As for the real estate sector – a pillar of the Chinese economy – its infernal decline continues. “ After stabilizing earlier in the year, new home sales fell last month to their lowest level in two years as the outbreak hit home demand. says Julian Evans-Pritchard of Capital Economics. Housing starts fell another 20% in the first quarter.
the worst to come
Economists agree on one point: The worst is yet to come. The month of March only bears witness to the beginning of the confinement in Shanghai, which has been partial for a month, total since April 1. This strict confinement, which occurs after shenzhen , known as the “Silicon Valley of China”, has not only paralyzed the largest city in the country, but has also created a huge mess in the supply chain, causing factories to close due to lack of supplies from their suppliers and then being able to deliver to your customers. Not to mention that the resurgence of Covid-19 cases has led many regions to impose severe restrictions on mobility.
“The economy is in trouble”, warns Wei Yao, of Société Générale. “April data should be even worse”continues his colleague from Capital Economics. Some economists no longer rule out a decline in the Chinese economy in the spring. “The risk of recession increases in the second quarter”we warned in Nomura. “Internal activity sinks, observes the head of a French industrial group in Shanghai. We are having problems delivering to our clients, our clients are no longer delivering to their clients, projects are being postponed”.
The biggest economic shock of the year
When China slows down, it’s the entire world economy that is in danger of coming to a standstill . China’s zero covid policy will be the biggest economic impact of the yearAlicia García Herrero, chief economist for Asia at Natixis, warned last week. The images of the closure of Shanghai are surely not as ominous for Western observers as the war in Ukraine, but its negative consequences for the global economy could be even greater.. And remember that China exports a third of the intermediate goods consumed in the world.
Li Keqiang, the Chinese premier, has repeatedly warned in recent weeks of economic risks. The priority is the stability of the Chinese communist regime, whose leader Xi Jinping is preparing for a third term at the 20th Communist Party Congress in the fall. Beijing has set itself the goal of increasing GDP “about 5.5%” this year but many economists are skeptical and lower their growth forecasts.
“We expect a stronger macroeconomic response in the second quarter to support growth, but the impact will be limited if mobility remains restricted”says Tommy Wu of Oxford Economics. On Friday, the People’s Bank of China (PBoC) announced it would lower the reserve requirement ratio for banks by 25 basis points for the first time this year. A move seen as disappointing, a sign that Beijing is not yet ready to bring out the heavy artillery to rescue its economy.