Coronavirus economic impact update

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China’s economy was clearly lagging behind in July, and the flooding and the outbreak of the coronavirus delta mutation exacerbated concerns that the country’s growth trajectory will continue to lose momentum.

Official data released on Monday showed that, driven by the base effect in 2020, retail sales increased by 8.5% year-on-year, while industrial production increased by 6.4%. Economists surveyed by Bloomberg expect growth of 10.9% and 7.9%, respectively.

China has imposed strict travel restrictions on it The biggest outbreak The coronavirus outbreak this year began in Nanjing in mid-July and has since caused hundreds of new infections in multiple cities. In the past month, extreme floods centered in Henan Province have also reduced activity.

These disruptions coincided with the signs of deeper structural changes in the Chinese economy, and the industrial prosperity that promoted China’s rapid recovery from the early stages of the pandemic is under pressure. Tightening credit conditions Consumers remain cautious.

Capital Macros Senior China Economist Julian Evans-Pritchard pointed out that although retail sales have fallen from the previous month, he said investment spending and industrial activities that are less sensitive to coronavirus restrictions are also weak.

He said: “Once the virus situation is brought under control and restrictions are lifted, the decline in consumption should be reversed.” “But we think the slowdown in other places will deepen for the rest of the year.”

In July, China’s export growth, which was an important engine of economic recovery in the past year, slowed to 19% year-on-year, compared with 32% in June. In order to alleviate the currency situation, the government lowered the reserve requirement ratio for banks.

“We think these data will increase the likelihood of further RRR cuts in the coming weeks,” said Mitul Kotecha of TD Securities. He added that even considering the weakening of the base effect last year, the July data was weaker than expected.

Ningbo-Zhoushan Port, one of China’s largest ports, was partially closed last week, highlighting the vulnerability of international trade to China’s new infections.

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ANZ on Monday lowered its growth forecast for 2021 to 8.3% from 8.8% after the release of the data in July. Louis Kuijs, head of the Asian Economics Department at Oxford Economics, said the setback was “enough to make us lower our growth forecast for the second half of the year”.

He added: “Given China’s’zero tolerance’ attitude towards the new coronavirus, future epidemics will continue to pose a major risk to the outlook.”