BEIJING (Reuters) – China recorded its slowest economic growth since the initial COVID outbreak, official data showed on Friday, rising just 0.4% in the second quarter amid lockdowns and market weakness. real estate pushing a government target even further out of reach.
Beijing has dug its heels into a zero-COVID policy of eradicating virus clusters as they emerge with instant lockdowns and lengthy quarantines, but that has hurt businesses and kept consumers jittery.
The slowdown comes after China’s largest city, Shanghai, was locked down for two months as it battled a resurgence of COVID-19, tangling supply chains and forcing factories to halt operations.
“At the national level, the impact of the epidemic is still lingering,” NBS spokesman Fu Linghui said on Friday, noting falling demand and supply disruptions.
“The risk of stagflation in the global economy is growing” too, he told reporters, saying external uncertainties were growing.
April-June GDP in the world’s second-largest economy also fell 2.6% from the first three months of this year, the National Bureau of Statistics (NBS) said.
China has recorded a contraction in GDP only once in recent decades, and analysts expect the latest reading to further dampen growth for the year as a whole.
Industrial production rose 3.9% year-on-year in June, from 0.7% in May, as Covid controls eased.
But retail sales rose 3.1% after falling 6.7% in May, which analysts called an encouraging sign.
And the urban unemployment rate fell four points from 5.9% that month, the BES said.
The economy is “on track for a slow recovery,” said Zhiwei Zhang of Pinpoint Asset Management.
“Nevertheless, economic growth is still well below potential as fears of Covid outbreaks continue to hurt consumer and business sentiment,” he added in a note.
“Difficult to reconcile”
Economists have long questioned the accuracy of official Chinese data, suspecting the figures are being manipulated for political purposes.
China’s growth in the second quarter is “hard to square with the big hit to activity from the shutdowns,” said Julian Evans-Pritchard, senior China economist at Capital Economics.
“Even taking into account June’s strength, the data is consistent with negative year-on-year growth in the last quarter,” he added.
The data comes on the heels of growing challenges in China’s key real estate sector – which by some estimates accounts for a quarter of gross domestic product – with weak home sales in recent months.
A growing number of home buyers are also refusing to pay their mortgages for fear that their properties will not be built on time.
“We remain cautious on the outlook for growth in the second half as the spread of the much more contagious variant of Omicron across the country could trigger another round of widespread lockdowns,” the chief economist told AFP. from Nomura for China, Ting Lu.
With homebuyers halting mortgage repayments, this “could lead to a vicious cycle in the real estate sector, and a likely synchronized global downturn will eventually hit the export sector,” he said.
The news is mounting pressure on the leadership of the Communist Party, which is preparing for its 20th Congress, in which President Xi Jinping is expected to be given a new five-year term.
Analysts expect the government’s target of around 5.5% growth this year to be unlikely to be met, given that it will require a sharp acceleration in growth in the second half of the year.
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