China’s GDP likely hit by lockdowns, Covid zero exit

GDP

China’s key economic data this week will likely show a marked weakening in growth at the end of last year after the Covid Zero policy was abruptly ended, although attention is quickly shifting to a strong rebound in 2023.

A surge in infections in December took a toll on the economy, with official data Tuesday likely to show a slump in activity to levels comparable to when Shanghai was locked down in the spring last year.

That means gross domestic product growth in the final quarter of 2022 likely slowed to 1.6%, according to the median estimate in a Bloomberg survey of economists — less than half the pace recorded in the third quarter.

Full-year GDP probably grew just 2.7% last year, according to the survey, well below the government’s ambitious goal of “around 5.5%” and slightly above the 2.2% increase posted in 2020, when the pandemic first hit.

Much of China’s economy was bruised by Covid control measures in 2022, from full-scale lockdowns in places like Shanghai to restrictions that made it difficult for locals to travel and factories to move their goods when infections spiked.

The sudden abandoning of the Covid Zero policy at the end of last year pushed activity off the cliff, as workers became ill and consumers stayed home for fear of becoming sick.

There are signs infection waves in major cities like Beijing and Guangzhou have now peaked and activity has rebounded in recent weeks. The median estimate in a Bloomberg survey of economists is for GDP growth to accelerate to 4.8% in 2023, although some major banks like Morgan Stanley, Bank of America and Citigroup Inc. expect growth to be closer to 5.5% or higher.

The People’s Bank of China added less cash than expected into the banking system via policy loans and kept the rate unchanged on Monday, indicating a cautious stance as it seeks to avoid over-stimulating an economy transitioning toward normalized activities.

Here’s a guide to the data, which is scheduled to be released at 10 a.m. on Tuesday:

High frequency data showed a sharp drop off in mobility in major cities in China in December as Covid cases surged. Consumer sentiment also plunged, private surveys showed, having already hit record lows in previous months. Rising joblessness and slower growth in incomes in 2022 have kept households cautious about spending.

Car sales, however, likely improved in December, largely due to a pickup in electric vehicles, as tax breaks provided for buyers of such automobiles continued to encourage purchases.

Overall passenger vehicle sales in China increased 2.4% in December from a year earlier to 2.19 million, the Passenger Car Association said, taking the 2022 total to 20.8 million, up 1.6% from 2021.

Economists surveyed by Bloomberg predict retail sales contracted 0.8% for the full year in 2022 after rising 12.5% in 2021.

Factory activity barely grew in December, the survey of economists shows, due to supply chain and logistics problems following a jump in Covid cases. Weak global demand for exports has also weighed on production, with signs it will continue to be a drag on the economy this year.

Economists expect industrial production increased at the weakest pace since April, when it dropped 2.9% due to lockdowns in Shanghai and elsewhere.

Fixed-asset investment has been supported by stronger spending in infrastructure and still-healthy manufacturing growth. Property investment was a major drag last year amid the worsening slump in the sector.

Although regulators have stepped up support for the property market, the effects of the renewed efforts are slow to kick in, with home sales still falling in December.

Jobs figures remain a key focus as businesses in China have been forced to shed workers, freeze hiring or even close their doors — temporarily or permanently.

The surveyed unemployment rate in December likely stayed above government’s ceiling for 2022 of below 5.5%. The youth jobless rate for those aged between 16 and 24 will be closely studied for signs of further easing after it reached a record of about 20% during last year.

China may also publish official population figures on Tuesday, which will likely show a contraction for the first time in decades, experts say, a significant milestone that will have long-term repercussions for the economy.