Growth was boosted by a surprisingly good economic performance in January and February, with several indicators for these two months exceeding analysts’ forecasts. Retail sales fell 3.5% in March from a year earlier, the first drop since July 2020. Industrial production rose 5% in March, compared with 7.5% in the first two months of the year. “Economic growth is facing many difficulties and challenges now,” NBS spokesman Fu Linghui told a news conference in Beijing on Monday. Covid outbreaks in March disrupted production in some areas and hurt consumption, Fu said. In particular, catering, tourism and transport services have been severely affected. As a result of the “Covid shock”, unemployment has risen, he said. Unemployment in 31 major cities jumped to 6% in March, a record high. Unemployment among 16- to 24-year-olds reached 16%, the highest level in eight months.
The growth target seems high
The Chinese government has set a growth target for this year of around 5.5%, the lowest in three decades. But the Covid outbreak, coupled with the war in Ukraine – which has pushed up oil and commodity prices – has already made it seem inaccessible to many economists. “Economic data in April is set to deteriorate further,” Larry Hu, chief economist for Greater China at the Macquarie Group, wrote on Monday. Expects growth for the year around 5%. Some analysts are even talking about the risk that the economy will shrink this quarter, as the ongoing crisis in Chinese real estate puts even more pressure. “Activity data is set to fall sharply in April as the risks of a recession in the second quarter increase,” analysts at Japanese investment bank Nomura wrote on Monday. “The goal is to increase Beijing’s GDP [about] “5.5% this year is becoming more and more challenging and now we see significant downside risks for our annual forecast for GDP growth of 4.3%”, they added.
Lockdown leaves economy in “power”
Shanghai is the epicenter of the current Covid epidemic, but it’s not the only one – Nomura estimates that there are full or partial lockdowns in 45 Chinese cities, affecting a quarter of the country’s population and about 40% of the economy. In an effort to alleviate the unrest, the Chinese government on Friday released a “white list” of 666 companies that will be allowed to resume production. Almost 40% are car manufacturers or companies involved in the supply of the car industry. It is not clear when these companies will be able to continue production. China’s Covid Zero Strategy remains the key risk to its economic outlook. “In fact, the economy is in crisis,” Societe Generale analysts said on Monday. “The problem, as we have repeatedly pointed out, is lockdowns – they are still valid and they are still spreading.” Chinese Premier Li Keqiang has repeatedly warned last week about the threat posed by rising Covid cases to growth and jobs. Last Wednesday, it promised more interest rate cuts to stimulate the economy. Two days later, the People’s Bank of China announced a reduction in the required reserve ratio – which dictates the amount of cash banks must hold in their reserves – a move aimed at boosting lending. – CNN’s Beijing office contributed to this report.
