(Beijing) Sudden slowdown: China experienced a slump in economic growth in the second quarter to post its worst performance since 2020, driven by health restrictions and a housing crisis that severely impacted activity.
Updated yesterday at 11:38pm.
According to official figures released on Friday, the gross domestic product (GDP) of the world’s second largest economy grew by just 0.4% over the year from April to June.
This is the weakest growth rate since the beginning of 2020, when COVID-19 paralyzed activities in China in the first quarter (-6.8%).
This decline was generally expected. However, a group of analysts polled by AFP expected a much more moderate slowdown (1.6%).
While caution is advised, China’s official GDP still comes under close scrutiny given the country’s weight in the global economy.
In the first quarter of 2022, the country’s gross domestic product (GDP) grew by 4.8% year-on-year.
The economy is facing an “extremely unusual” situation due to the international context and COVID-19 in China, said a National Bureau of Statistics (NBS) official Fu Linghui.
Outcome: Quarter-over-quarter growth at the Asian giant shrank 2.6% after rising 1.3% in the January-March period.
Zero weight COVID-19
Since 2020, the country has been applying a zero-COVID-19 policy, which consists of avoiding the emergence of new cases as much as possible through targeted lockdowns, massive screenings, quarantine of those who test positive, and surveillance of movements.
In the spring, the economic capital of Shanghai went into lockdown for two months in response to the country’s worst outbreak in two years.
A similar restriction was considered for some time in May in Beijing, the capital and center of political power.
These measures have dealt a severe blow to the economy as many companies, factories and businesses have been forced to shut down and supply chains have been under pressure.
Against this background, according to Julian Evans-Pritchard, economist at Capital Economics, positive GDP growth in the second quarter is “hard to believe”.
However, retail sales, the main indicator of household spending, rebounded strongly in June (+3.1% over one year) after declining for the third consecutive month in May (-6.7%).
For its part, industrial production rose 3.9% yoy last month after an unexpected rebound of 0.7% in May.
The recovery of the epidemic added to the difficulties already weighing on the Chinese economy: sluggish consumption, Beijing’s turning gear against several dynamic sectors, including technology, uncertainties related to Ukraine, but also real estate crisis.
Concerned real estate
According to the SNB, prices for new residential properties fell again in June (-0.5% yoy).
This is the second month of decline for this index, which aggregates the average price across 70 cities in China.
In addition, “a growing number of buyers are stopping making their monthly payments due to the economic slowdown and delays” by developers for construction progress or handover of keys, says economist Betty Wang of ANZ Bank.
The unemployment rate was 5.5% in June compared to 5.9% in the previous month.
Specially monitored by the authorities and only calculated for city dwellers, the unemployment rate had reached an all-time high of 6.2% in February 2020, at the height of the epidemic, before declining.
Beijing has set itself the goal of GDP growth of “around 5.5 percent” for this year, which many economists doubt will be achieved.
That figure would mean China’s weakest growth rate since the early 1990s, excluding the COVID-19 period.
This slowdown in growth comes at a politically sensitive year, with Xi Jinping set to be re-appointed as Chinese Communist Party (CCP) leader in the fall, barring a disaster.
Last year, the country, which had recovered from the shock of the first wave of the epidemic, generated an 8.1% increase in GDP for the whole of 2021.