Covid lockdowns took their toll on the Chinese economy in the second quarter, provoking a sharp contraction in GDP. GDP fell 2.6% from the first quarter. The contraction was a direct result of many cities being placed in full or partial lockdowns, including Shanghai – a major industrial and manufacturing center.
Still, despite the calamitous effect, China continues to pursue its “zero-Covid” policies, spooking investors, and casting a pall over its economy.
Growth on a year over year basis for the second quarter was 0.4%, off 0.6% from the 1% expectation.
Tommy Wu, lead economist at Oxford Economics said, “Second quarter GDP growth was the worst outcome since the start of the pandemic, as lockdowns, notably in Shanghai, severely impacted activity at the start of the quarter.”
This downturn affected brands in other countries with interests in the nation. British luxury brand Burberry, had reported it saw Chinese sales drop 35% in the first quarter as shoppers were locked down in their homes. It has since reported “encouraging” sales since reopening its stores in June.
Similarly, official Chinese government numbers show the economy rebounding as the lockdown measures were lifted recently.
Mr Wu noted, “June data was more positive, with activity picking up after most of the lockdowns were lifted. But the real estate downturn continued to drag on growth.”
Jeff Halley, senior market analyst for Asia Pacific at trading platform Oanda noted there were bright spots in the latest data, saying, “GDP was worse than expected, however unemployment fell to 3.5% and retail sales outperformed impressively… Financial markets are likely to concentrate on the retail figures, which appear to show the Chinese consumer in better shape than expected.”
However many analysts are concerned that China has still set unrealistic standards for suppressing the Covid virus, and unreasonable measures to be enacted, locking down entire regions, when those standards are inevitably not met and handfuls of cases are detected.
Meanwhile the real estate market is in a slump, and the outlook for the global economy is deteriorating as well, as some have noted major outflows from Chinese equities.
