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China’s economy slowed down in April by COVID-19 lockdowns

With a heavy toll taken by COVID-19 lockdowns on consumption, industrial production and employment, China’s economic activity cooled sharply in April leaving fears it may experience shrinking in Q2.

March and April saw full or partial lockdowns imposed in dozens of Chinese cities, including a protracted shutdown in commercial centre Shanghai, keeping workers and shoppers confined to their homes and severely disrupting supply chains.

In April, retail sales shrank 11.1 percent from a year earlier. This came to be worse than forecast and the most significant contraction since March 2020, data from the National Bureau of Statistics (NBS) showed on Monday.

Some provinces had their dining-out services suspended, which resulted in a 22.7 percent drop in catering revenue in April. China’s auto sales slid 47.6 percent from a year earlier as carmakers slashed production amid empty showrooms and parts shortages.

In the largest decline since February 2020, industrial production fell 2.9 percent from a year earlier, below expectations for 0.4 percent growth.

China processed 11 percent less crude oil in April than a year earlier, with daily throughput falling to the lowest since March. The country’s April power generation also fell 4.3 percent from the previous year, the lowest since May 2020.

The lockdown clutches unsettled China’s job market prioritised by Chinese leaders for economic and social stability. As shown by a nationwide survey, the jobless rate rose to 6.1 percent in April from 5.8 percent – the highest since February 2020 when it stood at 6.2 percent. The 6.7 percent jobless rate in 31 major cities in April is the highest since records started in 2018. The government aims to keep the jobless rate below 5.5 percent in 2022.

China’s ambitions to create more than 11 million jobs, and preferably 13 million urban jobs in 2022, may have to be revisited, as Prime Minister Li Keqiang recently called the country’s employment situation “complicated and grim” following the worst COVID-19 outbreaks since 2020.

Fixed asset investment, the main driver that Beijing is counting on to prop up the economy as exports lost momentum, increased 6.8 percent year-on-year in the first four months, compared with an expected 7.0 percent rise.

The extended lockdown in Shanghai and prolonged testing in Beijing are adding to the concerns about economic growth over the rest of the year, said Nie Wen, Shanghai-based economist at Hwabao Trust. “It’s still possible to achieve a GDP growth of around 5 percent this year if COVID curbs are only going to affect the economy in April and May. But the virus is so infectious, and I remain concerned about growth going forward.”

On Sunday, China’s financial authorities said they would let banks cut the lower limit of interest rates on home loans based on the corresponding tenor of the Loan Prime Rate for first home purchases, a move to support housing demand and promote the healthy development of the country’s property market.

ING analysts are looking for a 1 percent contraction in economic growth in the Q2 from a year earlier, while Nomura said the Chinese economy had been facing a rising risk of recession since mid-March. Capital Economics is now forecasting full-year Chinese growth of just 2 percent without guarantees that it would be such if COVID cannot be controlled.

China’s central bank rolled over maturing medium-term policy loans while keeping the interest rate unchanged for a fourth straight month on Monday.

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