The economic activity data announced in China reveal the shocking effect of the curfews on the economy in April. Industrial production, which fell sharply to the 5% band in March, pointed to a 2.9% annual contraction in April, weaker than the already low expectations, while retail sales decreased by 11.1% year on year in April. It showed a much deeper slowdown than the March’s 3.5% contraction. Thus, since the beginning of the year, retail sales have passed into the region of contraction of 0.2%, revealing the negative trend in the demand level of the economy. Data from auto sales and home sales to the official service PMI all confirm the decline in retail sales.

 

Fixed asset investment since the beginning of the year has been in a decreasing trend with a 6.8% increase rate. A surge in government-led investment remains a significant boost to overall investment, but the downward pressure from the slowdown in real estate investment and the Covid-19 lockdowns in several cities seems unbalanced. In this context, we see a 2.7% decline in real estate investments.

 

China's April activity data reveal an alarming trend as the lockdowns in Shanghai and elsewhere in the country reveal the extent of the damage to the economy. Detail from high-frequency data and PMIs points to a slowdown in activity. Shanghai's June opening, if it happens, will somewhat offset the slowdown from the Covid shutdowns. It may be supportive in terms of the high consumer inflation and the price effect on expenditures, but it is not positive in terms of reducing the general demand effect. The opening of the income and wage gap also harms the real estate sector and exacerbates the problems in the country's real estate companies.

 

The supportive monetary policy trend and measures at the central bank will continue. The PBOC kept 1-year MLF rates flat at 2.85%, while lowering mortgage rates from 4.6% to 4.4% to support the residential market.

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