China’s economic growth slumps sharply after Covid lockdowns

Shutdown of cities takes its toll, while property market remains in crisis and global outlook darkens

China’s economic growth has slowed sharply in the second quarter of the year, official data showed on Friday, highlighting the colossal toll from widespread Covid lockdowns and casting doubt over whether its pre-ordained growth target can be met.

Output contracted by 2.6% between April and June compared with the previous quarter, the statistics bureau said, prompting many economists to revise their predictions for the world’s second biggest economy.

On an annual basis the economy grew 0.4% in the second quarter, the worst since the pandemic-hit first months of 2020, but even that was worse than the consensus forecast by economists of 1%.

The consultancy Capital Economics said the real figure was probably “even weaker than meets the eye” and suggested that the Chinese government – accustomed to trumpeting growth well above that achieved by western countries – could be trying to disguise the economy’s sluggishness.

“Even with some massaging of the figures, it’s hard to see how the government’s target of ‘around 5.5%’ growth this year can be attained. That would take a huge acceleration in the second half of this year, which is unlikely,” said Julian Evans-Pritchard, China economist, in a note on Friday.

While noting some strong signs of recovery in retail sales for example, Evans-Pritchard said growth was “likely to remain relatively weak over the coming quarters”.

“We expect the official GDP figures to eke out growth of 3%-4% this year but think the reality on the ground will be closer to zero growth across the year as a whole,” he said.

The signs were mounting that the economy was slowing. This week’s figures showed that imports for the second quarter grew by just 0.1%, called “staggeringly” low by one economist considering that prices for key imported commodities such as oil and food have rocketed since April.

A more significant sign lies in the latest unemployment data, economists said. The statistics bureau reported on Friday that youth unemployment has risen to 19.3%, a trend accelerated by the full or partial lockdowns imposed in major centres across China in March and April, including the commercial capital, Shanghai.

“For China, it’s a societal issue,” said Alicia García-Herrero, the Hong Kong-based chief economist for Asia Pacific at Natixis bank. “A lot of people will ask now: where is my future? It kind of breaks their ‘China dream’. This is a key problem now.”

Serena, a 26-year-old English teacher in the southern city of Zhuhai, has finally found a job this month after two years of searching. “For the last two years, I have been struggling. It was highly competitive and extremely difficult if you want to teach in public schools,” she told the Guardian. “And the pay turned out not to be as it was promised.”

Given China’s insistence on zero Covid and the recent discovery of the highly transmissible Omicron subvariant BA.5, many analysts do not expect a rapid economic recovery. In addition, the country’s property market is in a deep slump, and the global outlook is darkening.

The slowdown comes after China’s biggest city, Shanghai, was sealed off for two months as it battled a Covid-19 resurgence, tangling supply chains and forcing factories to halt operations.

A delivery person receives a bag of take-away food over a constructed barrier during a lockdown in China in June 2022.
Analysts expect that pressure on consumption will probably persist. Photograph: Hugo Hu/Getty Images

Beijing has dug its heels in on a zero-Covid policy of stamping out virus clusters as they emerge with snap lockdowns and long quarantines, but this has battered businesses and kept consumers jittery.

“Domestically, the impact of the epidemic is lingering,” the statistics bureau said in a statement on Friday, noting shrinking demand and disrupted supplies. “The risk of stagflation in the world economy is rising,” the statement said, noting that external uncertainties were growing.

Sign up to the daily Business Today email or follow Guardian Business on Twitter at @BusinessDesk

The data comes after mounting challenges in China’s key real estate sector, which by some estimates accounts for a quarter of gross domestic product, with weak home sales in recent months.

A growing number of homebuyers are also refusing to pay their mortgages over worries their homes will not be built on time. This week, a documentary about how hundreds of homebuyers in the central Chinese city of Xi’an have had to live in unfinished apartments struck a chord with many Chinese homebuyers.

Although there are signs that China’s economy has started to recover since Shanghai eased lockdown restrictions in June, analysts expect that pressure on consumption will probably persist.

The news piles pressure on the Communist party’s leadership, which is gearing up for its 20th congress, when President Xi Jinping is expected to be handed another five-year term.

Additional reporting by Xiaoqian Zhu, Reuters and Agence France-Presse


Martin Farrer, Vincent Ni and agencies

The GuardianTramp

Related Content

Article image
China’s factory activity shrinks amid Covid disruption
Sharpest contraction is in energy-intensive industries, such as petrol, coking coal and ferrous metals

Graeme Wearden

31, Jul, 2022 @4:40 PM

Article image
China’s move to ease Covid travel restrictions lifts hopes for global economy
Analysts says lifting of many rules may soften impact of higher interest rates and unblock supply chains in 2023

Anna Isaac

27, Dec, 2022 @5:20 PM

Article image
From economic miracle to mirage – will China’s GDP ever overtake the US?
Analysis: issues of governance, rising debt, Covid and property market turmoil will delay Beijing’s quest to become the global economy’s No 1

George Magnus

28, Dec, 2021 @3:08 PM

Article image
How Covid spread fear of globalisation and threatens a new world order
From China backtracking on coal to Britain’s ‘chicken king’ calling for a rethink of food production, the virus has accelerated nationalist impulses towards autarky

Martin Farrer

15, Oct, 2021 @11:39 PM

Article image
China retail sales fall fuels concern for global recovery from Covid-19
Retail sales dropped 1.1% in July while industrial production remains subdued

Richard Partington

14, Aug, 2020 @12:06 PM

Article image
IMF warns China over cost of Covid lockdowns
Hardline approach to pandemic risks damaging global economy, says Kristalina Georgieva

Phillip Inman

21, Jan, 2022 @6:20 PM

Article image
China becomes first major economy to recover from Covid-19 pandemic
Year-on-year expansion, while slightly lower than analyst expectations, represents a dramatic reversal

Lily Kuo in Beijing

19, Oct, 2020 @4:59 AM

Article image
China's economic growth slowest since 1990 amid trade war with US
Fears China may not be able to help shore up weakening global growth as GDP figures are slowest nation has reported in 28 years

Lily Kuo in Beijing

21, Jan, 2019 @2:23 AM

Article image
'Significant threat' to Chinese economic growth amid coronavirus outbreak
Asia Pacific markets suffer heavy losses as death toll rises, with Chinese index closed until 3 February

Martin Farrer

28, Jan, 2020 @4:54 AM

Article image
China's economy shrinks as coronavirus hits world trade
Economic effects of lockdowns felt globally as depressed demand affects manufacturers

Lily Kuo in Beijing

17, Apr, 2020 @1:33 PM