China’s retail sales fell to their lowest level in two years while factory output slumped, official data showed on Monday, capturing the dismal economic fallout from Beijing’s zero-Covid policy.
The world’s second-largest economy has persisted with strict anti-virus measures, clogging global supply chains as dozens of Chinese cities, including key trade hub Shanghai, grapple with restrictions.
Officials have pledged to support growth by lowering the mortgage rate for first-time home buyers. While Shanghai’s phased reopening was announced over the weekend, observers warn the zero-Covid strategy could mute any positive impact.
The latest cut came on Monday when the Office for National Statistics (NBS) announced data showing retail sales contracted 11.1 percent year-on-year in April.
It is the biggest drop since March 2020, as Chinese consumers remained cooped up at home or nervous about persistent restrictions.
“In April, the epidemic had a great impact on economic operations,” NBS spokesman Fu Linghui said on Monday, adding that the outbreak had a “significantly larger than expected” effect.
But he stressed that the hit would be “short-term” and that a gradual recovery was expected.
Industrial output growth also sank 2.9 percent year-on-year, reflecting damage from factory closures and transportation problems when officials tightened Covid restrictions last month.
This figure is the weakest since the beginning of 2020 and is down from 5.0 percent growth in March.
The sad result came as China is battling its worst Covid outbreak since the early days of the pandemic.
“The prolonged Shanghai lockdown and its ripple effect on China, as well as logistical delays resulting from roadblocks…have severely affected domestic supply chains,” said Tommy Wu, chief China economist at Oxford Economics.
He added that household consumption was “even more affected” and that the interruption in activity could last until June, with a rebound likely to take weeks.
In April, unemployment similarly rose to levels not seen since early 2020, the data showed, as the urban jobless rate hit 6.1 percent.
In a sign of looming concern among authorities, China on Friday announced measures to help young people find work as a record number of recent graduates are expected to enter the market this year.
These include social security subsidies for smaller companies that hire more graduates.
State-owned companies are also expected to boost hiring, the official Xinhua news agency said.
“Repeated indications from the authorities that significant policy easing is coming have not been met,” financial services firm Gavekal said in a recent note, adding that policymakers may be waiting for the blocks before boosting the stimulus.
“However, as Shanghai and Beijing struggle to reopen and the economic damage continues to grow… officials may still be forced to ramp up stimulus sooner,” Gavekal said.