China’s central bank cut several of its key rates on Monday to support an economy battered by anti-Covid restrictions and a housing crisis, following disappointing indicators in July. The world’s second-largest economy saw a rebound in activity in June after the lifting of numerous health restrictions, particularly in Shanghai, the economic capital, which was confined for two months in the spring.
But this recovery remains fragile and dependent on a so-called “zero Covid” health policy, which weighs down the economy with lockdowns and unexpected business closures. To support activity, the Central Bank unexpectedly lowered its bank refinancing (Repo) rates on Monday.
The seven-day rate was set at 2% (from 2.10% previously), while the one-year rate was lowered to 2.75% (from 2.85%). The goal is to increase banks’ liquidity and ultimately encourage them to extend more credit to support activity. “However, it is not certain that this will be enough” for the economy, said analyst Julian Evans-Pritchard of Capital Economics.
“Slowdown”
In July, retail sales and industrial production in China suffered an unexpected slowdown, due to a rebound in Covid-19 and a real estate crisis that weighed heavily on activity, according to official figures published on Monday. The main indicator of household spending, retail sales increased by 2.7% in one year, compared to 3.1% in June, announced the National Bureau of Statistics (BNS).
Analysts, on the contrary, anticipated an acceleration (+5%), thanks to a resumption of activity in the country, heavily penalized in the spring by the confinement in Shanghai. For its part, industrial production increased by 3.8% in one year, but this rate is lower than that of June (+3.9%) and analysts’ forecasts (+4.6%).
These “disappointing” indicators reflect a “loss of speed” in the post-pandemic recovery, underlines Ken Cheung, an analyst at Japanese bank Mizuho. Especially since the country has faced an epidemic rebound in recent weeks, limited in terms of cases but affecting many provinces.
tourism in trouble
Tens of thousands of tourists are especially confined to the tropical island of Hainan (south), a very popular destination in China at this time of year. Positive cases of Covid-19 have also been registered in Tibet (west) and Xinjiang (northwest), two regions highly dependent on tourism for the local economy.
These epidemic spikes add to the difficulties that were already weighing on the Chinese economy: slow consumption, Beijing’s turn of the screw against several dynamic sectors, including technology, uncertainties related to Ukraine but also the real estate crisis.
For its part, investment in fixed assets moderated again in July (down to 5.7%). This is the fifth consecutive month of decline and another sign that the economic outlook remains bleak. As for the unemployment rate, it fell slightly in July, to 5.4% (compared to 5.5% in June). But it rose sharply among 16-24 year olds, to 19.9% (up from 19.3% in June).
Source: BFM TV
