China’s economy hit a slowdown in May as lockdowns continued to weigh on activity, and Omicron and the threat of extended restrictions dampened sentiment.
This is an outlook based on Bloomberg’s aggregate index of eight early indicators for the month. The overall gauge remained below the mark that separates improvement from deteriorating conditions for the second consecutive month.
Sectors affected by virus control measures have fallen to 20.5% of China’s GDP, down from 35.1% at this time last month, according to estimates by Nomura Holdings Inc. But it may take longer to fully recover from the sudden halt of economic activity. Uncertainty by the lockdown, and from China’s COVID Zero strategy, has made businesses reluctant to invest and consumers reluctant to spend.
Small business confidence fell again in May to the second lowest level since the start of the data series, according to a Standard Chartered plc survey of more than 500 small firms. The weakness in the gauge – the worst since the early months of the pandemic – reflects the impact of massive lockdowns despite recent progress towards reopening. Overall sentiment turned disappointing, economists at the firm said, with the sub-index expected to measure below 50 for the first time since February 2020.
“Demand remained weak,” economists Hunter Chan and Ding Shuang wrote in a report, adding that the sub-index measuring new orders declined further. Other sub-indices measuring raw material and finished goods inventories were raised.
Retail, housing, catering, and leasing and commercial services — all contact-intensive — “remained the main drag,” economists said. He said small and medium-sized enterprises focused on exports “started to feel the pain,” experiencing month-on-month contraction.
External demand was hit in May as the global economy adjusted to a fallout from the war in Ukraine, and as China’s virus lockdown weighed on supply chains.
While South Korean exports – a leading indicator for global trade – rose sharply in the first 20 days in May compared to April, the average daily shipment figures increased by just 7.6%, the highest in preliminary figures since the end of 2020. small profit. Exports remained weak to China, growing only at a much slower pace than shipments to Japan or the US.
Home and car sales continued to decline, albeit at a slower pace than in the previous month. This is despite the government relaxing the rules and cutting taxes for car purchases. To counter the housing slowdown, the People’s Bank of China this month cut interest rates for new mortgages, banks lowered their prime lending rates for home loans, and the State Council urged local governments to support reasonable housing demand. asked me to do.
Top leaders have dialed up their rhetoric on stabilizing growth with more frequent pledges to support weak links, including consumption, jobs and small businesses. This week, the State Council launched a comprehensive package of support measures that included more tax relief, more emergency loans for aviation and boosting bonds for railway construction.
Extended promises have not impressed economists. Many have cut China’s economic growth forecast this year, citing COVID-related restrictions as one of the top reasons. According to the average estimate in Bloomberg’s latest survey, there is a consensus for GDP growth of 4.5% this year, well short of the official target of about 5.5%.
early indicator
Bloomberg Economics generates the overall activity reading by aggregating a three-month weighted average of the monthly changes of eight indicators, which are based on trade surveys or market prices.