COVID-19 dampens China’s growth outlook
April 19th 2022.
CHINA. Strong activity in the first two months of 2022 offset the slowdown in March allowing sequential growth to pick up to 1.3% (quarter over quarter seasonally adjusted) from 0.7% in Q4. Even so, the spread of Omicron in Jilin province dented consumer sentiment leading to a 3.5% y/y contraction in retail sales in March.
Although the adoption of the “closed loop” operations, in which workers sleep, live and work in isolation, in cities like Shenzhen limited the impact on manufacturing activity. Industrial production showed a pullback in growth by the end of the quarter.
Even fixed asset investment decelerated, indicating that fiscal spending could not be ramped up in the face of widening restrictions. As a result, the labour market deteriorated with the surveyed unemployment rate rising to 5.8% in March, the highest since May 2020.
Further slowdown likely
The monthly data in March will likely be followed by further deterioration in April. The latest PMI numbers have already given an early indication of the impact of the latest COVID containment measures.
Yet, the deterioration in production and consumption in March mostly reflects the Omicron outbreak in Jilin and Shenzhen. Since the end of March, Shanghai has been placed in an extended lockdown, which has been followed by restrictions in other localities to varying degrees.
Even before local transmission of COVID surged in mid-March, SEB had already viewed the growth target of “about 5.5%” as too ambitious. The incoming data in April will likely show an even deeper slowdown. If current restrictions persist, there is a risk that Q2 GDP could sequentially contract.