As the Covid outbreak exposes consumer weakness, China’s economic slowdown intensifies

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Coronavirus economic impact update

China’s economic slowdown worsened in August as the coronavirus outbreak exposed continued weakness in consumer spending and raised greater doubts about China’s growth prospects.

Retail sales in August grew by only 2.5% year-on-year, well below the 7% growth predicted by economists, and the lowest increase in 12 months.

Industrial production is one of the main engines of China’s economic development The world’s throbbing recovery Official data on Wednesday showed that the target of 5.3% growth in 2020 has also not been achieved.

Due to recent floods, regulatory interventions, new coronavirus infections and a slowdown in real estate that have led to a decline in growth expectations, these figures have exacerbated concerns about the loss of momentum in the Chinese economy.

As households remain cautious, consumer activity lags behind the country’s broader recovery during the pandemic, but has been severely hit by the interruption. HSBC analysts pointed out that the retail sales of the catering industry fell 4.5%, the first contraction since November 2020.

UBP senior economist Carlos Casanova (Carlos Casanova) said: “Facts have proved that after Covid, pushing retail sales is more challenging than expected.”

The coronavirus outbreak in recent months initially revolved around the Covid-19 Delta variant case that occurred in Nanjing in July. After the authorities took preventive measures, travel and consumption were curbed.

In the past week, dozens of new cases have been reported in the southern province of Fujian, and local authorities have closed schools.

Casanova added: “As far as China maintains a zero tolerance policy for Covid-19, this makes their economy vulnerable to any potential local outbreaks because they will have to shut down.” “This will translate into consumption. Decline and supply chain disruption”.

Goldman Sachs analyst, last month Lower growth expectations China’s real GDP growth rate in the third quarter fell from 5.8% to 2.3%, which also indicates that industrial indicators (including electricity production and ferrous metal smelting) have “significantly slowed down”.

Weak economic indicators and expectations coincide with a slowdown in the country’s real estate industry. According to Bank of America data, if the direct and indirect contribution to growth is taken into account, the real estate industry accounts for approximately 28% of economic activity.

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Around the crisis EvergrandeAs China’s most indebted developer with hundreds of projects across the country, Beijing’s efforts to reduce the industry’s leverage ratio in the past year have become the focus of attention.

After the People’s Bank of China released more liquidity into the banking system by lowering the deposit reserve ratio in July, the weak data has sparked debate about the prospects for further policy intervention.

“We don’t think that policymakers will significantly relax the overall macro policy stance,” said Tommy Wu of the Oxford Economics Institute. “But we expect Beijing to be keen to avoid a sharp economic slowdown and be more willing to take measures to support growth than so far this year.”

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