Expectations exceeded: China’s economy grows almost five percent

exceeded expectations
China’s economy grows by almost five percent

Despite the pandemic and conflict in Ukraine, the Chinese economy grew by 4.8% in the first quarter of 2022. However, the lockdowns, some of which were very harsh, have resulted in a significant drop, especially in retail. Industrial production, on the other hand, is booming.

Despite restrictions in the fight against the latest wave of corona, China achieved unexpectedly strong growth of 4.8 percent in the first quarter. However, according to the Beijing Bureau of Statistics, economic momentum in the second-largest economy has weakened since March. “Downward economic pressure has increased,” spokesman Fu Linghui told reporters in Beijing. 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 continues,” the spokesperson said. “Some factors were above expectations.” Problems in the production and operation of Chinese companies have increased. Transportation and logistics are also affected. China’s government had set a growth target of 5.5 percent for the full 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 about whether the ambitious goal can be achieved. The growth of the first quarter is above the forecasts of the experts, who had little more than 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 the corona restrictions to continue to weaken the economy in the second quarter. An indication of this is the surprisingly sharp drop in retail sales in March by 3.5 percent compared to the same month last year. The industrial production had a somewhat better development, but expected, with a plus of 5.0 percent. Fixed investment also rose more than expected in the first quarter, by 9.3 percent overall. In March, however, they were notably weaker, only rising 0.61 percent compared to the same month last year.

Many companies are going out of business

China is currently experiencing the largest corona wave since the pandemic began more than two years ago. With the most populous country following a strict zero covid policy, there are extensive curfews in Shanghai and other metropolitan areas. Tens of millions of people are unable to leave their homes. Many companies have to close their operations. Freight traffic is also restricted. Oxford Economics experts were surprised by the strong growth throughout the quarter. “We think it mainly reflects the growth shown in official data for January and February, before economic activity weakened in March,” an analysis said.

In March, China’s economy and especially household consumption slowed due to lockdowns and mobility restrictions. The outages are likely to continue for weeks. 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 long-term liquidity. However, the central bank did not go further and did not raise rates as some experts 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 base of comparison in 2020, when the pandemic had severely slowed down the economy in China.

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