Abrupt brake on the Chinese economy: the effects of the pandemic and the housing crisis

The Chinese economy slowed sharply in the second quarter of 2022, to the point of being registered its worst performance since 2020following the health restrictions due to covid-19 and the crisis that hit the real estate sector.

The second largest economy in the world experienced year-over-year growth of 0.4% between April and June, after registering 4.8% in the first quarter, according to official data released on Friday by the National Statistical Office (ONE ).

This is the lowest figure since the first quarter of 2020, when covid-19 paralyzed activity in China, resulting in a 6.8% drop in GDP.

The slowdown came after China’s largest city, Shanghai, was shut down for two months to contain a Covid-19 outbreak, disrupting supply chains and causing the factory closures.

Beijing insisted on keeping it zero covid policy, whose goal is to eradicate virus outbreaks through quarantines and mass testing, which have hit the economy hard.

Risk of “stagflation”

“Internally, the impact of the pandemic persists,” ONE said in a statement Friday, indicating falling demand and disruption of supplies.

“The risk of stagflation in the world economy is also increasing”, added the text, which indicated this external uncertainties they are getting old.

China has experienced only one economic contraction in recent decades and analysts predict that with the latest data, growth for this year will be around 4%, below initial forecasts.

If markets were expecting a pullback, its scale would be “a shock,” economist Rajiv Biswas, of the cabinet at S&P Global Market Intelligence, told AFP.

Shanghai suffered a accident in the second quarter, as its GDP contracted by 13.7% year-on-year.

In this context, it is “hard to believe” in positive growth nationwide during this period, according to Julian Evans-Pritchard, an economist at Capital Economics.

Other causes

The outbreak of epidemic added to the difficulties that the Chinese economy was already experiencing: weak consumption, government pressure on various dynamic sectors such as technology, uncertainty linked to the war in Ukraine and the real estate crisis.

In June, new home prices fell again (-0.5% yoy), according to ONE.

This is the second month of decline in this index, which takes into account average prices in 70 Chinese cities.

On the other hand, “an increasing number of buyers stop repaying their monthly payments due to the economic slowdown and delays” of real estate developers in progress or at the delivery of keys, said economist Betty Wang, of ANZ bank. . .

This aspect of real estate crisis it is “worrying” because it threatens the financial system, warned economist Zhiwei Zhang of the cabinet Pinpoint Asset Management.

As for the unemployment, the rate was 5.5% in June against 5.9% in May. However, it strongly increased among the youngest, the 16-24 age group (19.3%).

China has set a GDP growth target of “around 5.5%” for this year, but many economists doubt it will be achieved.

This growth figure would be the lowest for China since the early 1990s, with the exception of the covid period.

Source: AFP

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