China Economy: China’s economy is paying a big price for the country’s Covid Zero policy. Industrial output and consumer spending fell to their lowest levels since the start of the pandemic. According to a Bloomberg report, analysts have warned of no recovery for the time being.
Industrial output fell unexpectedly by 2.9 per cent in April compared to a year ago. At the same time, retail sales declined by 11.1 per cent, which is much lower than the 6.6 per cent expected.
The unemployment rate has risen to 6.1 percent and the youth unemployment rate has reached a record high. Investors reacted strongly by selling in Chinese stocks to US index futures and oil.
China government’s increased concern
China’s main financial newspapers on Monday published a six-month-old speech by President Xi Jinping, emphasizing the need to secure jobs and accelerate growth. In this way he had indicated the need to strengthen the economy.
The rise in unemployment comes as a major concern for the Communist Party ahead of a second leadership change in a decade later this year, with Xi expected to be crowned a third time.
Macquarie Group Head (China Economics) Larry Hu said, “Zero Covid was preferred over economic growth in April, but for the full year they want to achieve both. Achieving zero-Covid at the cost of increasing unemployment overall is very politically damaging, especially when this year is so politically significant.”
Fall in GDP
According to Bloomberg Economics, Monday’s data shows that compared to a year ago, there was a decrease of 0.68 percent in GDP in April, which is the first decline since February 2020. According to UBS Group AG, growth is expected to weaken to below 2 per cent in the second quarter, while S&P Global Ratings expects growth to be weak to 0.5 per cent.
Aany challenges ahead
Chetan Ahiya, chief Asia economist at Morgan Stanley, said supply chain pressure was probably at its highest in April and there is hope for some further improvement.
Speaking to Bloomberg TV, he said, “In the next few weeks, issues related to the supply chain are expected to be resolved. And, the opening of Shanghai is certainly a key factor that we are looking at. Now many challenges are going to arise for the rest of the world, but the worst has been left behind.”