COVID set to hit China’s economic activity in March data

Workers watch as a crane lifts a structure at a construction site in Shanghai, China January 14, 2022. REUTERS/Aly Song

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  • China’s Q1 GDP growth expected at 4.4%, down from 4.0% in Q4
  • March data likely deteriorated sharply on COVID lockdowns, April set to be worse
  • Q1 GDP, March activity data due Monday at 02:00 GMT
  • C.bank should ease policy to cushion slowdown

BEIJING, April 17 (Reuters) – China is expected to report a sharp deterioration in economic activity in March as COVID-19 outbreaks and lockdowns hit consumers and factories, although first-quarter growth may have sagged. accelerating due to a good start at the beginning of the year.

Data on Monday is expected to show gross domestic product (GDP) rose 4.4 in January-March from a year earlier, according to a Reuters poll, beating the 4.0% pace in the fourth quarter due from a surprisingly strong start in the first two months.

But on a quarterly basis, GDP growth is expected to fall to 0.6% in the first quarter from 1.6% in October-December, according to the poll, indicating a slowing momentum.

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Separate data on March activity, particularly retail sales, are expected to show an even steeper slowdown, analysts say, hit hard by China’s stringent efforts to contain its biggest COVID outbreak since the discovery of the coronavirus. coronavirus in the city of Wuhan at the end of 2019.

Analysts say April readings are likely to be worse, with shutdowns in the Shanghai Mall and elsewhere dragging on. Some economists say the risks of a recession are increasing.

The government is due to release first quarter and March figures at 02:00 GMT on Monday, with investor speculation rising over whether there will be further measures to stimulate the economy.

Late Friday, China’s central bank announced it would reduce the amount of cash banks must hold as reserves for the first time this year, freeing up about 530 billion yuan ($83.25 billion) of long-term liquidity. . Read more

The move was widely expected after the State Council, or cabinet, said on Wednesday that monetary policy tools – including cuts to banks’ required reserve ratios (RRRs) – should be used in a timely manner.

Policymakers must make sure all is well ahead of a bi-decade meeting of the ruling Communist Party in the fall, when President Xi Jinping is all but certain to secure an unprecedented third term as leader, political insiders said.

But Beijing’s strict zero-tolerance policy on COVID-19 is increasingly straining the world’s second-largest economy and beginning to disrupt supply chains globally, from cars to iPhones. Read more

“As the Party Congress approaches, we believe the central bank will prioritize growth, especially as the battle against COVID drags on and housing markets fail to rebound,” they said. Barclays analysts said in a note.

Retail sales, a lagging consumer indicator since the first hit of COVID-19, likely fell 1.6% in March from a year earlier. It would be the worst result since June 2020, reversing a 6.7% rise in the first two months, according to the poll.

Industrial production likely rose 4.5% in March from a year earlier, slowing 7.5% in the first two months, while investment in fixed assets may have risen 8.5% in January-March, slowing by 12.2% in the first two months.

The Reuters poll predicts China’s growth will slow to 5.0% in 2022, suggesting the government will face an uphill battle to meet this year’s target of around 5.5%. Read more

Barclays estimates second-quarter GDP growth could drop to 3%, dragging 2022 growth to 4.2%, if Shanghai’s extended lockdown were to last a month and partial lockdowns in the rest of the country remained in place during two months.

Reflecting weakening domestic demand and COVID-related logistical issues, Chinese imports contracted in March, while exports – the last major driver of growth – show signs of fatigue. Read more

The government has unveiled other fiscal stimulus measures this year, including stepping up local bond issuance to finance infrastructure projects and cutting corporate taxes.

But analysts are unsure whether the rate cuts would do much to halt the short-term economic recession as factories and businesses struggle and consumers remain cautious about spending. More aggressive easing could also trigger capital outflows, putting further pressure on Chinese financial markets.

“I don’t think this RRR cut (Friday) matters much for the economy at this point,” said Zhiwei Zhang, chief economist at Pinpoint Asset Management, noting that it was below market expectations.

“The main challenge facing the economy is Omicron outbreaks and lockdown policies that restrict mobility. More liquidity may help on the margin, but it doesn’t solve the root of the problem. Manufacturers are facing the daunting risk of supply chain disruptions.

“If we don’t see effective policies to address the mobility problem, the economy will slow down. I expect GDP growth in the second quarter to turn negative.”

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Reporting by Kevin Yao; Editing by Kim Coghill

Our standards: The Thomson Reuters Trust Principles.

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