CHINA’S economy ended the year in a major slump as business and consumer spending plunged in December, with more disruption likely in the first few months of the year as Covid infections surge across the country.
Official data over the weekend showed the decline in manufacturing worsened last month, while activity in the services sector plunged the most since February 2020.
Separately, a private survey of businesses by China Beige Book International published on Monday (Jan 2) suggests the economy contracted in the fourth quarter from a year earlier.
China’s abrupt ditching of strict Covid controls in December fuelled a surge in infections in major cities, prompting people to stay home as they fell ill or feared becoming infected.
While the outbreak has likely peaked in places like Beijing, and economic activity is starting to rebound there, the virus is spreading fast across the country. A likely travel rush during the upcoming Lunar New Year holiday could see cases spread to rural areas, disrupting activity in the first quarter.
The lifting of the Covid curbs came at a time when the economy was already quite weak. Covid restrictions had pushed consumer and business sentiment close to record lows, the property market is in a record slump and overseas appetite for Chinese goods has plummeted.
A private PMI survey due on Tuesday will likely also confirm the worsening decline in December. The Caixin manufacturing index probably dropped to 49 from 49.4 in November, according to economists surveyed by Bloomberg.
Economists predict China’s economy grew just 3 per cent in 2022. China Beige Book, a provider of independent data, said its surveys suggest the economy grew only 2 per cent last year.
“With the ongoing Covid tidal wave, investment sliding to a 10-quarter low, and new orders continuing to get battered, a meaningful first-quarter recovery is increasingly unrealistic,” said Derek Scissors, chief economist at CBBI.
Economists see the possibility of a faster and stronger rebound later in 2023. After the likely slow start in the January-to-March period, growth is projected to pick up to 4.8 per cent for the year, according to the median estimate of economists surveyed by Bloomberg.