China’s economic growth slumps sharply after Covid lockdowns

Shutdown of cities takes its toll, while property market remains in crisis and global outlook darkens

China’s economic growth has slowed sharply in the second quarter of the year, official data showed on Friday, highlighting the colossal toll from widespread Covid lockdowns and casting doubt over whether its pre-ordained growth target can be met.

Output contracted by 2.6% between April and June compared with the previous quarter, the statistics bureau said, prompting many economists to revise their predictions for the world’s second biggest economy.

On an annual basis the economy grew 0.4% in the second quarter, the worst since the pandemic-hit first months of 2020, but even that was worse than the consensus forecast by economists of 1%.

The consultancy Capital Economics said the real figure was probably “even weaker than meets the eye” and suggested that the Chinese government – accustomed to trumpeting growth well above that achieved by western countries – could be trying to disguise the economy’s sluggishness.

“Even with some massaging of the figures, it’s hard to see how the government’s target of ‘around 5.5%’ growth this year can be attained. That would take a huge acceleration in the second half of this year, which is unlikely,” said Julian Evans-Pritchard, China economist, in a note on Friday.

While noting some strong signs of recovery in retail sales for example, Evans-Pritchard said growth was “likely to remain relatively weak over the coming quarters”.

“We expect the official GDP figures to eke out growth of 3%-4% this year but think the reality on the ground will be closer to zero growth across the year as a whole,” he said.

The signs were mounting that the economy was slowing. This week’s figures showed that imports for the second quarter grew by just 0.1%, called “staggeringly” low by one economist considering that prices for key imported commodities such as oil and food have rocketed since April.

A more significant sign lies in the latest unemployment data, economists said. The statistics bureau reported on Friday that youth unemployment has risen to 19.3%, a trend accelerated by the full or partial lockdowns imposed in major centres across China in March and April, including the commercial capital, Shanghai.

“For China, it’s a societal issue,” said Alicia García-Herrero, the Hong Kong-based chief economist for Asia Pacific at Natixis bank. “A lot of people will ask now: where is my future? It kind of breaks their ‘China dream’. This is a key problem now.”

Serena, a 26-year-old English teacher in the southern city of Zhuhai, has finally found a job this month after two years of searching. “For the last two years, I have been struggling. It was highly competitive and extremely difficult if you want to teach in public schools,” she told the Guardian. “And the pay turned out not to be as it was promised.”

Given China’s insistence on zero Covid and the recent discovery of the highly transmissible Omicron subvariant BA.5, many analysts do not expect a rapid economic recovery. In addition, the country’s property market is in a deep slump, and the global outlook is darkening.

The slowdown comes after China’s biggest city, Shanghai, was sealed off for two months as it battled a Covid-19 resurgence, tangling supply chains and forcing factories to halt operations.

Beijing has dug its heels in on a zero-Covid policy of stamping out virus clusters as they emerge with snap lockdowns and long quarantines, but this has battered businesses and kept consumers jittery.

“Domestically, the impact of the epidemic is lingering,” the statistics bureau said in a statement on Friday, noting shrinking demand and disrupted supplies. “The risk of stagflation in the world economy is rising,” the statement said, noting that external uncertainties were growing.

The data comes after , which by some estimates accounts for a quarter of gross domestic product, with weak home sales in recent months.

A growing number of homebuyers are also refusing to pay their mortgages over worries their homes will not be built on time. This week, a documentary about how hundreds of homebuyers in the central Chinese city of Xi’an have had to live in unfinished apartments struck a chord with many Chinese homebuyers.

Although there are signs that China’s economy has started to recover since Shanghai eased lockdown restrictions in June, analysts expect that pressure on consumption will probably persist.

The news piles pressure on the Communist party’s leadership, which is gearing up for its 20th congress, when President Xi Jinping is expected to be handed another five-year term.