Beijing has dug its heels in on a zero-Covid policy of stamping out virus clusters as they emerge with snap lockdowns and long quarantines, but this has battered businesses and kept consumers jittery.
The slowdown comes after China’s biggest city Shanghai was sealed off for two months as it battled a resurgence of the virus, tangling supply chains and forcing factories to halt operations. “Domestically, the impact of the epidemic is lingering,” National Bureau of Statistics spokesman Fu Linghui said Friday, noting shrinking demand and disrupted supplies.
“The risk of stagflation in the world economy is rising” as well, he told reporters, adding that external uncertainties were growing. Economic expansion for April-June period in the world’s second-largest economy was also down 2.6 percent from the previous quarter, the NBS.
China has only logged a GDP contraction once in recent decades, and analysts expect the latest reading will drag further on full-year growth.
Still, industrial production rose 3.9 percent on-year in June, up from 0.7 percent in May as Covid controls eased, while retail sales picked up 3.1 percent after plummeting 6.7 percent the month before, in what analysts called an encouraging sign.
The economy is “on track for a slow recovery”, said Zhiwei Zhang of Pinpoint Asset Management. “Nonetheless, economic growth is still much lower than its potential, as the fear of Covid outbreaks continues to hurt consumer and corporate sentiment,” he added in a note.
The urban unemployment rate ticked down to 5.5 percent in June, NBS data showed.
But the figure for those aged 16 to 24 was significantly higher at 19.3 percent, adding to challenges in a year with a record number of college graduates. In Shanghai, where GDP plunged 13.7 percent in the second quarter, the jobless rate stood at 12.5 percent.
- ‘Hard to square’ -
China’s second quarter growth is “hard to square with the large hit to activity from lockdowns”, said Julian Evans-Pritchard, senior China economist at Capital Economics.
“Even accounting for June’s strength, the data are consistent with negative year-on-year growth last quarter,” he added.
The data comes at a time of mounting 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 homebuyers are also refusing to pay their mortgages over worries their properties will not be built on time. “We remain cautious on growth outlook in the second half, as spread of the much more infectious Omicron variant across the country could trigger another round of widespread lockdowns,” Nomura chief China economist Ting Lu told AFP.
With homebuyers halting mortgage repayments, this “could result in a vicious cycle in the property sector, and a likely synchronised global slowdown will eventually hit the export sector”, he added.