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China’s Q2 GDP shrinks from Q1

Analysts predict that China’s economy will develop slower than the government’s aim of 5.5 percent in Q2.

China’s economic development fell substantially in the second quarter, revealing the massive toll taken by widespread COVID lockdowns and hinting at continued pressure from a bleak global outlook in the coming months.

Friday’s shaky report adds to concerns of a global recession as authorities raise interest rates to combat skyrocketing inflation, putting more strain on consumers and companies around the world already dealing with the effects of the Ukraine war and supply chain disruptions.

Official figures released on Friday indicated that GDP increased by 0.4 percent year on year in the April-June quarter. Except for a 6.9 percent decline in the first quarter of 2020 due to the initial COVID shock, this was the worst performance for the world’s second-largest economy since the data series began in 1992.

It also fell short of the 1.0 percent rise predicted by economists polled by Reuters, and showed a significant deceleration from 4.8 percent growth in the first quarter.

GDP declined 2.6 percent from the previous quarter in the second quarter, contrary to projections for a 1.5 percent fall and a revised 1.4 percent growth in the preceding quarter. In March and April, full or partial lockdowns were enforced in key cities around the country, including the commercial metropolis Shanghai, which saw its GDP shrink by 13.7 percent year on year in the second quarter. In the same quarter, output in Beijing fell 2.9 percent year on year.

While many of those restrictions have already been relaxed, and June statistics showed hints of improvement, economists do not expect the economy to rebound quickly. China maintains its strict zero-COVID policy despite new flare-ups, the country’s housing market is in a severe downturn, and the global outlook is bleak.

The implementation of additional lockdowns in some areas, as well as the emergence of the highly contagious BA.5 variety, has raised fears among companies and customers about a lengthy period of uncertainty.

GDP increased by 2.5 percent year on year in the first half of the year.

Chinese equities (.CSI300) gained momentarily before falling, as the yuan sank to a 2-month low as a result of the poor GDP data.

China has increased policy assistance for the economy, but economists believe the stated growth target of roughly 5.5 percent for this year would be difficult to meet unless China abandons its stringent zero-COVID policy. According to a Reuters survey, growth will fall to 4% in 2022.

Fixed asset investment, a factor Beijing is banking on to support GDP, increased by a better-than-expected 6.1 percent year on year in the first six months of the year, compared to a 6.2 percent increase in January-May.

Retail sales increased 3.1 percent year on year in June, the fastest gain in four months after authorities lifted a two-month lockdown in Shanghai. Analysts had predicted flat growth following May’s 6.7 percent decrease.

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