Growth in China picks up, despite shocks from Covid

published on Monday 18 April 2022 at 08:34

China announced on Monday a rebound in its growth in the first quarter of 4.8% in a year, despite “significant challenges” for the economy at a time when the Shanghai confinement is strongly penalizing activity.

Although subject to caution, China’s official Gross Domestic Product (GDP) figure is still closely watched given the country’s weight in the global economy.

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

The Chinese economy faces “major challenges,” a senior economic official acknowledged at a news conference. From one quarter to another, the growth of the Asian giant grew by only 1.3%, a rate lower than that of the October-December period (1.6%).

China, which had largely controlled Covid-19 for two years, is facing its worst outbreak since last month.

Several tens of millions of Chinese were confined in March in the technological metropolis of Shenzhen (south), and continue to be confined in the northeast of the country, the cradle of the automobile industry, as well as in Shanghai, the economic capital of the country.

Contrary to many countries that choose to live with the virus and lift restrictions, China continues with a zero Covid policy.

– Consumption in the red –

Seriously damaging transport and supply chains, these measures have caused many businesses to close.

These difficulties were added to those that had already weighed on the Chinese economy in recent months: slow consumption, regulatory tightening in various sectors such as real estate and technology, and uncertainties linked to Ukraine.

In March, retail sales, the main indicator of household spending, fell by 3.5% year-on-year, its biggest drop since April 2020, when the Asian giant was just beginning to emerge from the first wave of the ‘epidemic crisis.

The March confinements “hit hard” consumer spending, particularly in shops and restaurants, analyst Rajiv Biswas, from the firm IHS Markit (S&P Global), stresses for AFP.

The consequences of the confinement in Shanghai in April will be “significant” on consumption, Biswas warns, arguing that its inhabitants have the highest disposable income in China.

For its part, industrial production only increased last month by 5% year-on-year, compared to 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.

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

As for fixed capital investment, its growth slowed during the first three months of the year to 9.3% against 12.2% at the end of December, according to the SNB.

– “Headwinds” –

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

In any case, the April figures will be poor due to logistical disruptions, which will weigh on GDP in the second quarter, it said.

Beijing has set a growth target of “around 5.5%” this year, which would mark China’s weakest rate since the early 1990s, apart from the year 2020 marked by the first wave of Covid.

Given the context, this target now looks “unattainable,” economist Larry Hu of Australian asset manager Macquarie said in a note.

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

The setbacks of the developer Evergrande, on the verge of bankruptcy, seized the entire sector.

The real estate and construction sector, which weigh more than a quarter of the country’s GDP, had played a key role in 2020 in the post-pandemic recovery.

The current situation contrasts sharply with that of last year: China then saw its growth jump 18.3% in the first quarter, due to a catch-up effect with 2020, when Covid-19 had paralyzed the economy.

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