Covid lockdowns weigh on retail and industrial production data

The ongoing spread of Covid and resulting stay-at-home orders – mainly in Shanghai – forced factories to close or work at limited capacity in April. Pictured here on May 12 is a refrigerator factory in Hefei, China, about a five-hour drive from Shanghai.

Xie Chen | Visual China Group | Getty Images

BEIJING — China reported a decline in retail sales and industrial production in April — much worse than analysts expected.

Retail sales in April fell 11.1% year-on-year, more than the 6.1% decline predicted in a Reuters poll.

Industrial production fell 2.9% yoy in April, against expectations for a modest 0.4% increase. Mining and utility production grew.

But output fell 4.6%, mainly due to a slump in the auto sector and equipment manufacturing, said Bureau of Statistics spokesman Fu Linghui. In addition to Covid, he said industrial production is under pressure from insufficient market demand, rising costs and other factors.

Over the past month, the continued spread of Covid and resulting stay-at-home orders – mainly in Shanghai – have forced factories to close or operate at limited capacity.

The “increasingly grim and complex international environment and the greater shock of [the] The Covid-19 pandemic at home has evidently exceeded expectations, new downward pressures on the economy continued to mount,” the statistics office said in a statement. The office said the impact of Covid was temporary and the economy “is expected to stabilize and recover. “

Fixed investment rose 6.8% year-on-year in the first four months of the year, slightly missing expectations of 7% growth. Investments in real estate fell by 2.7%, while investments in manufacturing rose by 12.2% and infrastructure by 6.5%.

China’s passenger car production fell 41.1% year on year in April, according to the China Passenger Car Association. The auto sector in China accounts for about a sixth of jobs and around 10% of retail sales, according to official 2018 figures from the Ministry of Commerce.

Auto sales fell 31.6% in April from a year earlier, data from the Bureau of Statistics showed. That was better than the peak of the decline in early 2020 — a 37% year-on-year drop in January and February this year — but worse than the 0% year-on-year change recorded in April 2020.

We believe local lockdowns will still severely impact the economy’s end of production in May and believe a quick turnaround is next to impossible.

Ting Lu

Chief Economist for China, Nomura

Catering sales plummeted 22.7% — better than a 31.1% year-on-year decline in April 2020. Restaurants in Shanghai were essentially closed in April, while the city of Beijing’s ban on dining in restaurants only came into effect at the beginning of May.

Within retail sales, only beverages, medicines, groceries and petroleum products recorded year-on-year growth.

“Although the number of Covid cases has declined significantly since the peak in mid-April, the lifting of lockdowns has been extremely slow, partly due to caution by local government officials,” said Ting Lu, Nomura’s chief economist for China, in a note. “As such, we believe local lockdowns will still severely impact the economy’s production end in May and view a quick turnaround as near impossible.”

The city of Shanghai announced on Sunday that it would begin to allow restaurants to gradually reopen, and on Monday said the city aims to resume normal production and life by mid-June.

Unemployment rate rises higher

The unemployment rate in China’s 31 largest cities climbed to a new high of 6.7% in April, according to data dating back at least to 2018.

The urban unemployment rate rose 0.3 percentage points from March to 6.1% in April. The unemployment rate among 16 to 24 year olds was almost three times as high at 18.2%.

For an added sense of the extent of the economic slowdown in April, other data showed a collapse in credit demand from businesses and households.

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Total social financing — a broad measure of credit and liquidity — roughly halved last month from a year earlier to 910.2 billion yuan ($134.07 billion), the People’s Bank of China said late Friday.

But Larry Hu, Macquarie’s chief China economist, said he expected the drop in credit demand to be short-lived. He pointed out that the central government took its “first action… to save property” on Sunday by cutting mortgage rates for first-time homebuyers.

The interest rate, which used to track the benchmark five-year lending rate, is now 20 basis points below.

“Today’s cut is far from enough to transform the real estate sector, but more easing for the real estate sector would come,” Hu said in a note on Sunday.

Real estate and related industries account for about a quarter of China’s GDP, according to Moody’s. Covid lockdowns weigh on retail and industrial production data

Jane Marczewski

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