Covid effect: China’s economic growth slumps to 0.4% in June quarter

China has reported a sharp decline in its economic growth in the second quarter ended June 2022 as Covid lockdown restrictions and weak global environment disrupted economic activities. As per the data released by the National Bureau of Statistics (NBS) on Friday, the gross domestic product (GDP) grew merely by 0.4% in the April-June quarter (Q2FY22) on a year-on-year (YoY) basis, dented by a drop in industrial activity and consumer spending in the wake of the pandemic. On a quarter-on-quarter basis, GDP fell 2.6% in the second quarter, while it stood at 2.5% for the first half of the year (H1FY22).

The numbers are well short of the Chinese government’s estimated GDP growth target of around 5.5% for this year, after a steep 8.1% expansion in 2021, which was the highest in nearly a decade. The economy had grown by 2.2% in 2020, when the Covid-19 outbreak in the central city of Wuhan turned into a full-blown epidemic.

The June quarter GDP growth of the world's second-largest economy was the lowest level in two years since the pandemic started. It was impacted by a surge in coronavirus cases in major Chinese cities, especially its commercial capital Shanghai, as well as global economic crisis due to the Russia-Ukraine conflict. Full or partial lockdowns were imposed in major cities, including Shanghai, in March and April to contain the spread of the virus, while detection of a new highly-contagious BA.5 variant has raised fresh concerns among businesses and consumers about future economic growth. Going forward, a bleak global growth outlook amid aggressive rate hikes by central banks across the globe to tame boiling inflation would also put pressure on the economy.

However, in a respite to the economy, major June macroeconomic indicators indicated a recovery of the economy with pick up in industrial production and improved consumer confidence.

Data on June factory activity, also released Friday, showed China's industrial output surged 3.9% in June as compared to the same period last year, while it rebounded strongly from a 0.7% rise in May. Retail sales also climbed 3.1% on a yearly basis in June, registering its sharpest growth in 4 months, after ease in lockdown measures in Shanghai.

The employment situation also improved marginally, with the nationwide survey-based jobless rate dropping to 5.5% in June, from 5.9% in May. However, youth unemployment (16 to 24 category) remained elevated at 19.3% in June, higher than 18.4% in May.

Meanwhile, in a separate development, China’s central bank kept its medium-term policy rate unchanged for a sixth straight month on Friday, to support the economy recovering from the pandemic effects. The People's Bank of China (PBOC) kept the rate on 100 billion yuan ($14.8 billion) worth of one-year medium-term lending facility (MLF) loans to some financial institutions unchanged at 2.85%. The central bank also announced that it infused 3 billion yuan through seven-day reverse repos, while keeping borrowing cost unchanged at 2.1%.