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Covid has hit China’s economy harder than expected

Hong Kong
CNN Business

China has reported disappointing economic data for the month of April, underlining the extensive damage Covid lock-in has done to the country.

The world’s second largest economy reported shocking declines in retail and factory production, which largely lacked market expectations.

Retail sales fell 11.1% in April from a year ago, according to China’s National Bureau of Statistics on Monday. It was well below the forecast for a fall of 6.1% in a Reuters survey among economists, and also much lower than the decline of 3.5% in March.

Covid has hit China’s economy harder than expected

Industrial production fell by 2.9% last month from the previous year, and reversed an increase of 5% in March.

This marks the worst decline in industrial production since February 2020, when China’s economy almost stopped during the first coronavirus outbreak.

Unemployment also rose to the second highest level recorded.

Urban unemployment reached 6.1% in April, up from 5.8% in March – which was already at its highest level in 21 months. The only time China’s unemployment was higher was in February 2020.

Asian stock markets struggled to recover after the weak data. Hong Kong’s Hang Seng (HSI), China’s Shanghai Composite and Korea’s Kospi reversed all opening gains, down between 0.3% and 0.5%.

China’s economy got off to a good start in 2022, recording growth of 4.8% for the first quarter.

But Beijing’s efforts to curb the worst Covid outbreak in two years have given activity a sharp blow since March.

So far, at least 31 cities in the country are still under full or partial blockade, according to CNN’s latest calculations. Shanghai, the country’s financial center and manufacturing hub, has been locked up more than six weeks. During this period, many companies have been forced to shut down, including carmakers Tesla (TSLA) and Volkswagen and iPhone maker Pegatron.

“We believe second-quarter GDP growth is likely to be negative,” said Zhiwei Zhang, president and chief economist of Pinpoint Asset Management, on Monday.

“The government is facing increasing pressure to launch new stimulus to stabilize the economy,” in Zhang.

China’s leadership is aware of the economic pain and has recently taken some steps to bring relief.

The People’s Bank of China announced on Sunday that it would cut mortgage rates for first-time home buyers, in a move to lift the ailing real estate market.

Separately, the Shanghai government said that the city will gradually open shops, restaurants and salons from Monday, which will be a relief for the 25 million inhabitants.

The government has also recently promised to support the economy through more infrastructure spending and targeted monetary easing to support small businesses.

But “the risk of the outlook is tilted to the downside, as the effectiveness of political stimulus will largely depend on the scale of future Covid outbreaks and shutdowns,” said Tommy Wu, China’s lead economist at Oxford Economics, on Monday.

“We estimate that GDP will grow 4% this year, with a quarterly decline in the second quarter before returning to growth in the second half.”

– CNN’s Beijing agency contributed to this report.

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