China Economic Activity Slumps With More Disruption to Come
China’s economic activity worsened in November before the government abruptly dropped its Covid Zero policy, with more disruption to growth likely as infections surge.
(Bloomberg) -- China’s economic activity worsened in November before the government abruptly dropped its Covid Zero policy, with more disruptions to growth likely as infections surge.
The contraction in retail sales widened to 5.9% in November from a year ago, data from the National Bureau of Statistics showed Thursday, worse than the median forecast for a 4% decline in a Bloomberg survey of economists.
Industrial output growth slowed to 2.2% from 5% in October, while fixed-asset investment growth weakened to 5.3% in the first 11 months of the year. Both missed economists’ expectations. The surveyed jobless rate climbed to 5.7%, the highest since May.
With China facing the first wave of infections after curbs were lifted, “the situation is not improving in December,” said Raymond Yeung, chief economist for Greater China at Australia & New Zealand Banking Group Ltd. “The recovery post-Shanghai lockdown in the third quarter was short lived. Fourth-quarter GDP growth will unlikely attain 3%.”
China’s benchmark CSI 300 Index of stocks fell 0.4% as of 11:04 a.m. local time as Asia shares broadly dropped. The yield on 10-year government bonds was little changed at 2.89%. The yuan weakened 0.1% to trade at 6.9607 per dollar in the onshore market.
Covid outbreaks worsened in China last month as cases in the capital Beijing and elsewhere picked up, triggering stricter virus control measures that curbed mobility, capped factory production and hurt confidence.
Since then, authorities have abruptly moved away from the long-held Covid Zero strategy, injecting more uncertainty into the growth outlook as infections spread wider. High frequency data such as subway and traffic figures already suggest a slowdown in Beijing and other places.
What Bloomberg Economics Says...
The swift rollback of Covid restrictions will eventually free up activity to bounce back. But immediate shocks from widening outbreaks mean the path will be extremely bumpy in coming months. A rapid surge in cases has led to widespread home confinement either due to illness or to avoid catching Covid. Disruptions to production and consumption are unavoidable. We see little prospect for relief at least until caseloads peak.
Chang Shu and Eric Zhu
For the full report, click here
“The economy withstood multiple unexpected pressures in November and maintained the recovery momentum, overall operating in a reasonable range,” the NBS said in a statement.
“But the global environment is turning increasingly grim and complex, and the domestic economy’s recovery foundation is not solid,” it said, calling for market confidence to be boosted and the government’s pro-growth measures to be implemented.
Car sales, which had been a rare bright spot in consumer spending this year, fell 4.2% in November from a year ago, the first decline in six months and boding ill for production in the coming months. Output of automobiles also declined for the first time since May, sliding 9.9% last month from a year earlier, NBS data showed.
Covid outbreaks across the country meant people went out less and spent less money, according to the statistics bureau. Sales of apparel, shoes, textile products, home appliances and communication appliances all fell by double-digits. Revenue of catering services was down 8.4% on year with dining in at restaurants restricted in some places, according to the data.
Home sales dropped 31% from a year earlier, worsening from a 23% decrease in October, according to Bloomberg calculations based on official data, underscoring that the property market slump has continued despite recent policy support. New-home prices in 70 cities also slid 0.25% last month from October, sales of building and decoration materials tumbled 10% on year, while property investment dropped almost 20%.
Economists expect more disruption in coming months, before a likely rebound in the second half of next year. Some have lifted their forecasts for gross domestic product growth for next year as China’s reopening boosts spending by consumers and businesses and the government likely adds more stimulus.
Separately, the People’s Bank of China on Thursday pumped more cash into the banking system than forecast at its monthly liquidity operation to help ease stress in money markets amid a selloff in bonds. The net injection of 150 billion yuan ($22 billion) may also help facilitate lending in the economy to bolster the recovery.
“The weak activity data suggest that the policy needs to be eased further to revive the growth momentum,” said Zhou Hao, chief economist at Guotai Junan International Holdings. He expects the PBOC to reduce the interest rate on one-year policy loans by 10 basis points in the first quarter of 2023.
Top leaders have already signaled the focus next year will be on boosting the economy rather than controlling Covid cases, suggesting more fiscal and monetary action may be on the cards. Officials are expected to meet Thursday at the Central Economic Work Conference to discuss economic goals for the coming year.
Growth for this year is expected to slow to just 3.2%, the weakest pace since the 1970s barring 2020’s pandemic slump.
--With assistance from and .
(Updates with details, more analysts’ comments.)
More stories like this are available on bloomberg.com
©2022 Bloomberg L.P.