China GDP: Q2 2022 records slowest growth since Covid in 2020

Gross domestic product in the world’s second largest economy increased simply 0.4% in the three months to June 30 compared to the same period last year, according to the National Bureau of Statistics (NBS) on Friday.

This was well below the 4.8% growth recorded in the previous quarter and well below the 1% growth estimated by economists in the Reuters poll. On a quarterly basis, GDP contracted by 2.6%.

It was the weakest performance since the first quarter of 2020, when China’s economy nearly ground to a halt as it struggled to contain the initial coronavirus outbreak that started in Wuhan. This quarter, GDP contracted by 6.8%.

In the first half of this year, the economy grew by 2.5%, well below the annual target of 5.5% set by the government. On Friday, Beijing acknowledged that meeting GDP targets this year will be difficult.

“There is a problem to meet our expected full-year economic growth target,” Fu Linghui, spokesman for NBS, said at a press conference in Beijing. But he expects the economy to recover in the second half of the year.

Installation problems

Chinese policy makers face mounting challenges to maintain robust growth as the country grapples with a sharp slowdown in activity due to Beijing’s tough coronavirus policies, heavy repressive private sector regulation and a real estate crisis that is causing bad debts to banks to rise and rising social protests.
Since March, Beijing’s uncompromising attitude towards eradicating the virus has led to months of lockdowns in dozens of cities across the country, including Shanghai, the national financial and shipping hub. Millions of residents have been locked in their homes, shops and restaurants have been closed and factories closed, disrupting consumer activity and disrupting supply chains.
Authorities began reopening the economy early last month, lifting restrictions in some key cities. Manufacturing and service industries have shown signs of improvement in recent weeks. But Beijing’s commitment to Covid zero has created huge uncertainty for businesses and dampened investor sentiment. Consumer spending remains weak while the labor market is under significant pressure, with youth unemployment reaching a new record high of 19.3% in June.
Xi'an closes again as China discovers first cases of new Omicron sub-variant

At a press conference on Friday, Fu said the economy had taken an “unexpected and severe” blow from internal and external factors.

Higher international commodity prices, especially food and energy prices, exacerbated imported inflation. Rising risks of stagflation around the world are also threatening China’s economic stability, Fu said.

The weak performance in the second quarter “reflected the significant turmoil caused by the Omicron outbreak and the corresponding stringent measures taken in major cities,” said Chaoping Zhu, Shanghai global markets strategist at JP Morgan Asset Management.

“Looking ahead, we expect the economy to recover further in the second half of this year, mainly driven by government-led infrastructure investment,” he said, adding that if the government eases Covid restrictions even further, consumer confidence could decline. come back at a faster pace.
Shoppers in China are still on strike and youth unemployment is rising

But the real estate sector may still pose a downside risk, Zhu said.

Larry Hu, Macquarie Group’s chief China economist, said the latest data shows that GDP growth needs to pick up to more than 7% in the second half of the year to deliver 5% annual growth for the full year.

“This is impossible without a significant escalation of the stimulus policy from the current level,” he said.

Property decline drags on

There were several bright spots in Friday’s economic data.

Mining and manufacturing recorded an increase of 0.9% compared to the second quarter of last year. And retail sales rose 3.1% year-over-year in June, helped by a jump in auto sales driven by pent-up demand and political support for electric vehicles. Industrial production also recovered in June, up 3.9% year-on-year.

But the vast real estate sector remains a major drag.

Real estate investment fell 9.4% in June from a year earlier, after falling 7.8% in May, according to Macquarie Capital calculations based on government data. Property sales by area fell 18% last month after falling 32% in May.

Home buyers in China refuse to pay mortgages for unfinished apartments

“Falling sales mean that developers are facing a lack of liquidity,” Hu said.

“The real estate trouble is causing growing social instability, as evidenced by the recent boycott of mortgages,” he added.

Over the past few days, desperate home buyers in dozens of cities have refused to pay mortgages for unfinished homes. The payment boycott comes as a growing number of projects have been delayed or halted due to a cash shortage that has left developer giant Evergrande defaulting on its obligations last year and several other companies seeking creditor protection.

Zhu of JP Morgan’s wealth management said the rising number of unfinished homes poses a big risk to banks’ financial health.

“Strong and effective regulatory action needs to be taken to prevent the mortgage boycott from becoming a systemic risk,” he said.

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