CHINA’S ECONOMY JUST about eked out positive growth in the second quarter compared to a year earlier, but the contraction from the first quarter tells the story of the economic impact of the zero-Covid policy on businesses and consumers, especially the lengthy lockdown in Shanghai.
Gross domestic product grew by 0.4% in April-June year-on-year and contracted by 2.6% compared to January-March, the Bureau of National Statistics announced today.
Shanghai’s economy shrank 13.7% year-on-year in the second quarter and Beijing’s 2.9%.
The national year-on-year number was the smallest since the data series began in 1992, excluding the 6.9% contraction in the first quarter of 2020 due to the initial COVID shock.
The recent high-frequency indicators, particularly for retail sales, suggest that the economy is starting to bounce back.
However, outbreaks of the highly contagious Omicron variants forcing more full or partial lockdowns remain a downside risk to recovery, given the continuing commitment to the zero-Covid policy.
The beleaguered property development sector remains a drag on growth, and the worsening outlook for the global economy is a further headwind.
The official target of 5.5% growth for the full year continues to look beyond reach, with an unrealistic 10% growth needed in the second half to achieve it. Further stimulus measures are likely, although authorities are limited in what they can do that will not stoke inflation (subdued by world levels) or worsen long-term debt risks.
Bloomberg calculates that $1.1 trillion has been earmarked for infrastructure spending, suggesting at best an extended pause to the effort to deleverage the economy.
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