TDespite the restrictions in the fight against the latest corona wave, China still achieved unexpectedly strong growth of 4.8 percent in the first quarter. However, according to the Beijing Statistics Office, the economic momentum in the second largest economy has been weakening since March. “The downward economic pressure has increased,” spokesman Fu Linghui said in Beijing on Monday. Domestic consumption has decreased.
“Since March, the situation in the world has developed in a complicated way. The impact of the epidemic in the country is ongoing,” the spokesman said. “Some factors were above expectations.” The problems in the production and operation of Chinese companies had increased. Transport and logistics are also affected.
China’s government had set a growth target of 5.5 percent for the whole year. However, the full extent of the corona outbreak and the curfews as well as the effects of the Ukraine war could not be sufficiently taken into account. Experts have expressed doubts as to whether the ambitious target can be achieved.
Corona lockdowns are weighing on the economy
The growth in the first quarter is above the forecasts of experts, who had counted on just over four percent. The increase was also stronger than in the weak fourth quarter of the previous year, when only 4.0 percent was achieved. Experts expect that the corona restrictions will continue to weaken the economy in the second quarter.
An indication of this is the surprisingly strong decline in retail sales in March by 3.5 percent compared to the same month last year. Industrial production developed somewhat better, but expected, with a plus of 5.0 percent. Fixed investment also increased more than forecast in the first quarter, at 9.3 percent overall. In March, however, they were noticeably weaker and only increased by 0.61 percent compared to the same month last year.
China is currently experiencing the largest corona wave since the pandemic began more than two years ago. Since the most populous country is pursuing a strict zero-Covid policy, there are extensive curfews in Shanghai and other metropolitan areas. Tens of millions of people cannot leave their homes. Many companies have to shut down operations. Freight traffic is also restricted.
Experts from Oxford Economics were surprised at the strong growth throughout the quarter. “We believe it mostly reflects the growth that official data shows for January and February, before economic activity slowed in March,” an analysis said. In March, China’s economy and especially household consumption slowed down due to the lockdowns and restrictions on mobility. The disruptions are likely to continue for weeks.
In order to stimulate the economy, the central bank announced on Friday that it would slightly reduce banks’ minimum reserves. This should provide the economy with around 530 billion yuan (76 billion euros) in liquidity in the long term. However, the central bank had gone no further and not hiked rates as some pundits had expected.
China’s economy posted strong growth of 8.1 percent last year, although momentum slowed significantly in the fourth quarter. However, the strong growth in 2021 can also be explained by the low basis for comparison in 2020, when the pandemic had severely slowed down the economy in China.