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Chinese GDP: Q2 2022 records the weakest growth since the Covid in 2020


The gross domestic product of the world’s second largest economy has increased by just 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.

That was significantly lower than the 4.8% increase recorded in the previous quarter and well below the 1% growth estimated by economists in a Reuters poll. On a quarterly basis, GDP fell by 2.6%.

It was the weakest performance since the first quarter of 2020, when China’s economy nearly came to a standstill as it struggled to contain the initial coronavirus outbreak that started in Wuhan. During 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. Beijing admitted on Friday that it would be difficult to meet its GDP targets this year.

“There are challenges to achieve our planned economic growth target for the whole year,” BES spokesperson Fu Linghui said at a press conference in Beijing. But he expected the economy to rebound in the second half.

More and more challenges

Chinese policymakers are facing increasing challenges to maintain stable growth, as the country faces a sharp slowdown in activity due to Beijing’s strict zero-Covid policy, a deadly regulatory crackdown on the private sector and a real estate crisis that is leading to an increase in bad debts to banks and growing social protests.
Since March, Beijing’s hardline stance to eradicate the virus has led to months of lockdowns in dozens of cities across the country, including Shanghai, the country’s financial and shipping hub. Millions of residents have been confined to their homes, shops and restaurants have been closed and factories have been closed, hammering 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 embrace of the zero-Covid stance has caused huge uncertainty for businesses and dampened investor sentiment. Consumer spending remains weak, while the labor market is under severe pressure – youth unemployment hit a new high of 19.3% in June.
Xi'an shuts down as China finds first cases of new Omicron subvariant

At Friday’s press conference, Fu said the economy had taken an “unexpected and severe” hit due to internal and external factors.

Rising world commodity prices, especially food and energy prices, have aggravated imported inflation. Growing risks of stagflation around the world also threaten China’s economic stability, Fu said.

The poor performance in the second quarter “reflects the large shocks from the Omicron outbreak and corresponding stringent measures adopted in major cities,” said Chaoping Zhu, Shanghai-based global market strategist for JP Morgan Asset Management.

“Looking ahead, we expect to see a continued economic recovery in the second half of this year, mainly supported by government-led infrastructure investment,” he said, adding that if the government eases further Covid restrictions, consumer confidence could bounce back at a faster pace.
Chinese buyers are still on strike and youth unemployment is rising

But the real estate sector can still pose a downside risk to growth, Zhu said.

Larry Hu, chief China economist for the Macquarie Group, said the latest data implies GDP growth needs to accelerate to more than 7% in the second half of the year to generate 5% annual growth for the whole. of the year.

“It’s impossible without a significant escalation of stimulus from the current level,” he said.

Property collapse drags

There were some clarifications in Friday’s economic data.

The mining and manufacturing industry grew by 0.9% compared to the second quarter of last year. And retail sales in June were up 3.1% from a year ago, helped by a jump in car sales spurred by pent-up demand and political support for electric vehicles. Industrial production also rebounded in June, up 3.9% from a year ago.

But the vast real estate sector remains a major obstacle.

Property investment fell 9.4% in June from a year ago, following a 7.8% plunge in May, according to Macquarie Capital calculations based on government data. Property sales by floor area fell 18% last month, following a 32% plunge in May.

Chinese buyers refuse to pay mortgages on unfinished apartments

“The drop in sales means developers are facing a cash crunch,” Hu said.

“The misfortune of property is at the root of growing social instability, as evidenced by the recent mortgage boycott,” he added.

Over the past few days, desperate homebuyers in dozens of cities have refused to pay mortgages on unfinished homes. The payments boycott comes as a growing number of projects have been delayed or stalled by a cash crunch that saw giant developer Evergrande default on debt last year and several other companies sought protection from creditors .

Zhu of JP Morgan Asset Management said the growing number of unfinished homes poses a significant risk to the financial health of banks.

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

cnn

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