Covid-19: China Economy Declines On The Back Of Zero-Covid Policy

July 17, 2022

China's economy contracted sharply in the second quarter of this year as widespread coronavirus lockdowns hit businesses and consumers.

Gross domestic product (GDP) fell by 2.6% in the three months to the end of June from the previous quarter.

Major cities across China, including the major financial and manufacturing centre Shanghai, were put into full or partial lockdowns during this period. This comes as the country continues to pursue its "zero-Covid" policy.

On a year-on-year basis, the world's second-largest economy expanded by 0.4% in the April-June quarter, missing expectations of 1% growth.

"Second quarter GDP growth was the worst outcome since the start of the pandemic, as lockdowns, notably in Shanghai, severely impacted activity at the start of the quarter," Tommy Wu, lead economist at Oxford Economics, told the BBC.

One victim of this downturn was British luxury fashion brand Burberry, which announced in a trading update on Friday that its sales in China had been badly affected. The company saw its Chinese sales drop by 35% in the first quarter as shoppers were forced to stay at home. However, it added that since stores reopened in China in June, its performance there has been "encouraging".

This was reflected in official government figures for last month, which showed an improvement in the country's economic performance after many curbs were lifted.

"June data was more positive, with activity picking up after most of the lockdowns were lifted. But the real estate downturn continued to drag on growth," said Mr Wu.

Meanwhile, Jeff Halley, senior market analyst for Asia Pacific at trading platform Oanda, said that he also saw some bright spots in the latest economic data from China.

"GDP was worse than expected, however unemployment fell to 3.5% and retail sales outperformed impressively," he said.

"Financial markets are likely to concentrate on the retail figures, which appear to show the Chinese consumer in better shape than expected," Mr Halley added.

However, many analysts do not expect a quick economic recovery for China as the government continues with its strict zero-Covid approach to slowing the spread of the coronavirus.

The country's once-booming property market is in a deep slump and the outlook for the global economy has weakened sharply in recent months.

GDP measures the size of an economy. Gauging its expansion or contraction is one of the most important ways of measuring how well or badly an economy is performing and is closely watched by economists and central banks.

It helps businesses to judge when to expand and recruit more workers or invest less and cut their workforces. Governments also use it to guide decisions on everything from tax to spending. It is a key gauge, along with inflation, for central banks when considering whether or not to raise or lower interest rates.

SOURCE: BBC
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