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China’s zero-COVID policy questioned as economy shrinks 2.6% in second quarter | Economic news

China’s zero-COVID policy is being blamed for a return to the red for its economy, with experts warning the recovery will be hampered by a darkening global output outlook.

Authorities said the world’s second-largest economy contracted 2.6% between April and June compared with the previous three months.

It meant that Chinese growth was only 0.4% on an annual basis.

Both figures were much weaker than economists had expected, with people polled by Reuters news agency forecasting a 1.5% quarter-on-quarter fall.

They clearly pointed to the impact of the closures of major cities during the period of struggle coronavirus infections – a measure that was clearly reflected in sales figures released by British luxury brand Burberry on Friday.

They showed a 35% drop in comparable sales across mainland China in its most recent three-month period.

The manufacturing and shipping hub of Shanghai, which has a population of 26 million, was among those blocked.

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April: Shanghai residents burst into buildings

Separate figures showed its economy shrank 13.7% in the three months – the worst performance of a single province according to the National Bureau of Statistics (NBS).

While factories and offices in Shanghai were allowed to reopen in May, economists say it will be months before activity returns to normal.

They also warned that China’s trading partners will continue to feel the impact of shipping disruptions in the months to come.

BES said of the second quarter performance: “The resurgence of the pandemic was effectively contained.

“The national economy has recorded a stable recovery.”

China has an annual growth target of 5.5% but its self-inflicted domestic disturbances means it will be impossible to achieve in 2022, economists said.

Indeed, the country is sticking to its strict zero COVID policy amid new outbreaks.

Consumer spending has been hampered by public health measures.

Burberry revealed a big blow to sales, following restrictions in China, in a business update from the city.

On a like-for-like basis, sales in its first financial quarter – covering 13 weeks to July 2 – were up just 1% across the group.

The figure rose to 16% when mainland China – its main growth market – was excluded, but the company said the outlook had improved since June.

Managing Director Jonathan Akeroyd told investors: “Our performance in the quarter continued to be impacted by lockdowns in mainland China, but I was pleased to see our more localized approach driving recovery in the region. EMEIA (Europe, Middle East, India and Africa), where spending by local customers was above pre-pandemic levels.”

In addition to subdued consumer spending, China’s real estate market also remains in a deep slump and global demand has fallen amid the inflationary spiral caused, in part, by China’s supply chain disruption, but also by the impact of Russia’s war in Ukraine which saw energy costs surge.

Toru Nishihama, chief economist at the Dai-ichi Life Research Institute in Tokyo, said: “You can rule out the possibility of a recession, or two consecutive quarters of contraction,” he said.

“Given weak (annual) growth, the Chinese government is likely to roll out economic stimulus measures from now on to accelerate its sluggish growth, but hurdles are high for the PBOC (People’s Bank of China) to reduce interest rates more, as this would stoke inflation, which has been kept relatively low at present.”

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Post expires at 2:50pm on Thursday July 21st, 2022