Posted on Apr 18, 2022, 11:15 AMUpdated on Apr 18, 2022 at 5:31 PM
A timid radiance 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 the recovery in the world’s second largest economy in the first two months of 2022. But it masks a significant decline that began in March, when many of China’s economic lungs, including Shanghai, were closed. The name of the “Zero Covid” policy.
Looking at them month after month, the Chinese data is worrying. noted analysts at Nomura, who “real GDP growth may be much weaker than official first-quarter data” suggests.
Retail sales fell sharply
In March, retail sales, the main indicator of household spending, fell 3.5% on an annual basis, marking the largest decline since April 2020, when the Asian giant was just beginning to emerge from the first wave of the crisis. Imports fell in March for the first time in more than a year. Likewise, exports slowed and industrial production slowed (+5% in March vs. +7.5% in January-February).
As for real estate – the pillar of the Chinese economy – it continues its hellish decline. “After stabilizing at the start of the year, new home sales fell last month to their lowest level in two years, as the pandemic affected housing demand,” notes Julian Evans-Pritchard of Capital Economics. Housing starts fell another 20% in the first quarter.
The worst is coming
Economists agree on one point: the worst is yet to come. March only sees the start of Shanghai’s lockdown, partly for a month, since 1Verse April. This strict containment, which comes after the containment of Shenzhen, known as “China’s Silicon Valley”, has not only brought the country’s largest city to a standstill, but caused major disruption to the supply chain, forcing factories to close. Supplied by its suppliers and then the ability to deliver to its customers. Not to mention that the resurgence of Covid-19 cases has led many regions to impose severe restrictions on movement.
“The economy is in distress,” warns Wei Yao of Societe Generale. “April data should be worse,” continues his colleague from Capital Economics. Some economists no longer rule out a deterioration in the Chinese economy in the spring. We at Nomura caution that “recession risks increase in the second quarter”. “Local activity is deteriorating,” notes the head of a French industrial group in Shanghai. We struggle to deliver to our clients, our clients no longer deliver to their clients, projects are postponed. »
The biggest economic shock of the year
When China slows down, the entire global economy is at risk of collapse. Alicia Garcia Herrero, chief Asian economist at Natixis, warned last week that China’s “zero-Covid” policy would be the biggest economic shock of the year. Images of Shanghai’s shutdown are certainly not as ominous to Western observers as the war in Ukraine, but their negative consequences The global economy may be greater, and to remind that China exports a third of the intermediate goods consumed in the world.
Chinese Premier Li Keqiang has repeatedly warned in recent weeks about economic risks. The priority is the stability of the Chinese Communist regime, whose leader Xi Jinping is preparing for a third term marking the 20th century.And Autumn Communist Party Congress. Beijing has set itself a goal of increasing GDP by “about 5.5%” this year, but many economists are skeptical and lowering 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,” said Tommy Wu of Oxford Economics. The People’s Bank of China (PBoC) announced Friday that it will cut banks’ reserve requirement ratio by 25 basis points for the first time this year. A disappointing measure, in a sign that Beijing is not yet ready to release heavy artillery to save its economy.