China's Economy Slows Sharply

Summary

 

Chinese economy fared much worse than expected in the second quarter of this year, reflecting the impact that Beijing’s Zero-Covid policy has had on that country. Moreover, while China’s economy is forecast to bounce back in the second half of this year, the fact that the country’s government appears wedded to this Zero-Covid policy indicates that more disruptions to the economy can be expected in the months ahead, with ramifications that will reach far beyond China’s borders.

 

In the second quarter of 2022, the Chinese economy expanded by just 0.4% on a year-on-year basis. This was not only well below the 4.8% growth recorded in the first quarter of this year, but it was also significantly lower than the growth that had been forecast for the second quarter. Furthermore, this raises significant questions about the ability of the Chinese economy to meet the government’s target of 5.5% economic growth for the year in 2022.

 

Much of this slowdown could be attributed to the impact of the government-imposed lockdowns on Shanghai and many other large Chinese cities in the second quarter. Not only did this impact consumer spending, but it also caused major disruptions to industrial activities across many areas of China.

 

 

A Look Ahead for the Chinese Economy

The positive news coming from these results is that many economic activities in China picked up in June. However, the recent rise in Covid cases could signal a new round of lockdowns in the coming weeks.

 

Global Implications

The world’s second-largest economy had been expected to be a leading driver of global economic growth in 2022 amid a deteriorating economic outlook for most of the world’s other leading economies.