– by Kevin Yao and Klaus Lauer
Beijing/Berlin (Reuters) – China’s economic growth plummeted in the spring, raising concerns of a global economic slowdown.
Mainly due to tough corona lockdowns, the gross domestic product (GDP) increased by a meager 0.4 percent within a year, official data showed on Friday. If you exclude the shock from the outbreak of the virus pandemic at the beginning of 2020, this was the lowest growth in the world’s second largest economy after the USA since data collection began in 1992. Economists are therefore assuming that the Beijing authorities will now try to boost the economy . “The target set by the government for 2022 of 5.5 percent growth seems utopian,” said NordLB expert Bernd Krampen.
Economists surveyed by Reuters had expected an annual GDP increase of 1.0 percent for the second quarter, after plus 4.8 percent at the beginning of 2022. “Now it got even worse,” said chief economist Thomas Gitzel from VP Bank. The lockdowns in Shanghai and Shenzhen were a major burden on private consumption. “But the mobility restrictions were also a heavy burden for industry and the logistics sector.” From the first to the second quarter, the Chinese economy even shrank by 2.6 percent. The easing that has now been introduced should boost growth again in the summer, said Gitzel.
Manufacturing and retail data in June signaled some improvement. VW China boss Stephan Wllenstein expects Volkswagen to significantly increase sales in its most important foreign market in the second half of the year.
CHINA WEAKNESS MEETS GERMAN ECONOMY – “DARK MONTHS”
However, the German economy will initially feel the after-effects of the lockdowns. When China’s economy weakens, this also affects the export nation with goods “Made in Germany”. Because the People’s Republic is by far Germany’s most important trading partner with an exchange of goods of 245 billion euros in 2021.
“The significant slowdown in the Chinese economy is an alarm signal for the German economy,” warned the Association of German Chambers of Industry and Commerce (DIHK). Disrupted supply chains, enormous price increases for energy and raw materials and the uncertainty about the energy supply are already major challenges for companies. “The weak economic development in China – Germany’s most important trading partner and previously the driving force behind the global economy – is making the worry lines even deeper,” Volker Treier, head of the DIHK for foreign trade, told the Reuters news agency. China is an important sales market for German companies, especially for machine and car manufacturers. “In addition, we obtain numerous preliminary products and raw materials from the country – the coming months look bleak.”
The exporters’ association BGA also warned of a damper. But wholesalers and foreign traders are not solely dependent on the Chinese market. “The strength of trade with the USA and above all with the European partners is currently helping to compensate for fluctuations,” said BGA President Dirk Jandura to Reuters. Trade barriers with other states and regions must now be dismantled as quickly as possible. “The lack of free trade agreements is a massive locational disadvantage for Germany and Europe.”
High inflation in the US and Europe is likely to slow down economic growth in China. Because consumers are currently avoiding goods that mainly come from the Asian country, said VP expert Gitzel. “The new TV will not be bought if the old one still does – China will feel that.” In addition, according to experts, the weakening Chinese real estate sector remains a problem child.
SHANGHAI’S ECONOMY SHRINKS MASSIVELY DUE TO LOCKDOWN
In recent months, China has put the financial metropolis of Shanghai, with its more than 25 million inhabitants, under a strict lockdown, which has led to closed factories and shops and traffic jams in the ports. In Shanghai, the economy collapsed in the second quarter by 13.7 percent over the year, in Beijing by 2.9 percent.
According to economists, the government will therefore have a hard time achieving its growth target for 2022. In the first half of the year, GDP was 2.5 percent higher than in the same period of the previous year. Commerzbank anticipates a plus of 3.5 percent for the year as a whole. “Given the weak growth, the Chinese government is likely to take stimulus measures to restart the economy from now on,” said Toru Nishihama, chief economist at the Dai-ichi Life Research Institute in Tokyo. “Especially in the run-up to the re-election of the President, which has already been decided in the fall, all the stops must now be pulled out,” estimates NordLB specialist Krampen. Fiscal policy has already announced measures and the central bank has lowered key interest rates and the so-called minimum reserve ratio. “But is that enough?” Krampen emphasized. “In any case, the government is certainly ready to intervene again.”
(Report also by Stella Qiu and Ellen Zhang, collaboration by Zhang Yan and Norihiko Shirouzu; edited by Elke Ahlswede. If you have any questions, please contact the editorial board on 030 2201 33711 (for politics and economics) or 030 2201 33702 ( for companies and markets)
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