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CNN business
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China’s economy got off to a solid start to the year, posting better-than-expected growth in the first quarter. However, a recent slump in consumer spending and rising unemployment point to much tougher months as dozens of cities remain under Covid lockdowns.
China’s gross domestic product grew by 4.8% in the three months to March 31, compared to the same period last year, the National Bureau of Statistics said on Monday. That was faster than the 4% increase the second largest economy in the world registered in the previous quarter.
Growth was buoyed by better-than-expected economic performance in January and February, with several indicators for those two months beating analysts’ forecasts.
But Beijing’s efforts to contain the worst Covid outbreak in two years has dealt a blow to activity since March, including in the country’s financial center and manufacturing hub — Shanghai. Many companies were forced to shut down operations, including automakers Volkswagen and Tesla, and iPhone assembler Pegatron.
Retail sales fell 3.5% yoy in March, the first drop since July 2020. Industrial production grew 5% in March, compared with 7.5% in the first two months of the year.
“Economic development now faces many difficulties and challenges,” NBS spokesman Fu Linghui said at a news conference in Beijing on Monday.
The Covid outbreaks in March disrupted production in some regions and hit consumption, Fu said. In particular, gastronomy, tourism and transport services have been hit hard.
Unemployment has risen as a result of the “Covid shock”, he said.
Unemployment in 31 major cities rose to 6% in March, a record high. Unemployment among 16-24 year olds hit 16%, the highest level in eight months.
The Chinese government has set a growth target of around 5.5% for this year, 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 this seem unattainable for many economists.
“Economic data in April is expected to continue to deteriorate,” wrote Larry Hu, chief economist for Greater China at Macquarie Group, on Monday. He anticipates growth of around 5% for the year.
Some analysts even speak of a risk of an economic slowdown in the current quarter, as the ongoing crisis in the Chinese real estate market is putting even more pressure on it.
“Activity data is expected to fall in April as recession risks rise in the second quarter,” analysts at Japanese investment bank Nomura wrote on Monday.
“Beijing’s GDP growth target of [about] 5.5% this year is becoming increasingly difficult and we now see significant downside risks to our annual GDP growth forecast of 4.3%,” they added.
Shanghai is the epicenter of the current Covid outbreak, but it’s not alone – Nomura estimates that 45 Chinese cities are in full or partial lockdown, affecting a quarter of the country’s population and around 40% of the economy.
In a bid to ease the disruption, the Chinese government on Friday released a “white list” of 666 companies allowed to resume production. Almost 40% are car manufacturers or companies involved in supplying the car industry. It is unclear when these companies will be able to resume production.
China’s zero-Covid strategy remains the main risk to its economic prospects.
“In reality, the economy is in distress,” said analysts at Societe Generale on Monday. “The problem, as we have emphasized repeatedly, is the lockdowns – which are still in place and are still spreading.”
Chinese Premier Li Keqiang has repeatedly warned over the past week of the threat that the surge in Covid cases poses to growth and jobs. Last Wednesday he promised further interest rate cuts to stimulate the economy. Two days later, the People’s Bank of China announced a cut in the reserve ratio – which dictates the amount of cash banks must hold in their reserves – a move intended to boost lending.
– CNN’s Beijing office contributed to this report.
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