China: 2Q22 GDP grows by 0.4% YoY

China’s 2Q22 GDP contracted by 2.6% in the quarter and grew by 0.4% a year earlier, reflecting the heavy slowdown seen in Shanghai and elsewhere due to the quarantines imposed to contain Covid-19. Expectations were 2% quarterly contraction and 1.2% annual growth. While weak growth rate is expected when compared to 4.8% in 1Q22, incoming data point to an even weaker trend. Since the start of the year, the economy has grown by 2.5%.

The two main components in the data are sectors — industrial production and service production — pointing to a decline in 2Q22 GDP. Industrial production fell 2.7% year-on-year in April when Shanghai was in lockdown, and returned to modest growth of only 0.7% in May, with the city’s partial reopening. A more comprehensive reopening in June brought recovery, with a 3.9% increase in industrial production – but still behind the pre-pandemic pace. The service sector has been hit much harder by the measures to contain omicron outbreaks, shrinking by 6.1% in April and 5.1% in May compared to the previous year. The increased activity in June provided a boost, though not enough to return activity to the previous year’s level.

Retail sales rose 3.1% in June. The 0.7% decline in retail sales since the beginning of the year points to the decreasing contribution of consumption. The trend since the beginning of the year shows that the problems date back to before the Covid bans. While investments increased by 6.1%, the increase was 9.2% in the public sector and 3.5% in the private sector, at a record low level after Covid. The unemployment rate fell from 5.9% to 5.5%.

Kaynak: Tera Yatırım
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