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Covid has hit China’s economy harder than expected

The world’s second largest economy reported shocking declines in retail sales and factory production, broadly missing market expectations.

Retail sales fell 11.1% in April from a year earlier, the China Bureau of Statistics said on Monday. That was well below the 6.1% decline forecast by a Reuters poll of economists, and also much lower than the 3.5% decline in March.

Industrial production fell 2.9% yoy last month, reversing a 5% gain in March.

This is the worst drop in industrial production since February 2020, when China’s economy nearly ground to a halt during the first coronavirus outbreak.

Unemployment also rose to the second highest level on record.

The urban unemployment rate hit 6.1% in April, up from 5.8% in March – already a 21-month high. The only time China’s unemployment rate was higher was in February 2020.

Asian equity markets struggled for gains after the weak data. Hong Kong hang seng (HSI)of China Shanghai composition (SHCOMP)and Koreas kospi (COSPI) all reverse opening wins between 0.3% and 0.5%.

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China’s economy got off to a good start in 2022, posting 4.8% growth in the first quarter.
But Beijing’s efforts to contain the worst Covid outbreak in two years have dealt a serious blow to activities since March.
So far, according to the latest calculations by CNN, at least 31 cities in the country are in full or partial lockdown. Shanghai, the country’s financial hub and manufacturing hub, has been on lockdown since 2020 more than six weeks. During this time, many companies were forced to shut down operations, including automakers Tesla (TSLA) and Volkswagen and iPhone assembler Pegatron.

“We believe second-quarter GDP growth is likely to turn negative,” said Zhiwei Zhang, president and chief economist of Pinpoint Asset Management, on Monday.

“The government is under increasing pressure to provide new impetus to stabilize the economy,” said Zhang.

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China’s leaders are aware of the economic problems and have recently taken some steps to remedy the situation.

The People’s Bank of China on Sunday announced it would cut mortgage rates for first-time homebuyers to prop up the ailing real estate market.

Separately, the Shanghai government said the city will gradually open shops, restaurants and salons starting Monday, which will be a relief for its 25 million residents.

The government also recently pledged to support the economy with more infrastructure spending and targeted monetary easing to support small businesses.

But “risks to the outlook are sloping to the downside as the effectiveness of policy stimulus will depend largely on the magnitude of future Covid outbreaks and lockdowns,” said Tommy Wu, senior China economist at Oxford Economics, on Monday.

“We are forecasting GDP growth of 4% this year, with a quarter-on-quarter contraction in the second quarter before returning to growth in the second half.”

– CNN’s Beijing office contributed to this report.

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