China data to show sharp March deterioration as COVID bites, but solid first-quarter growth: Reuters poll By Reuters

© Reuters. FILE PHOTO: Workers watch as a crane lifts a construction at a development web site in Shanghai, China January 14, 2022. REUTERS/Aly Song

By Kevin Yao

BEIJING (Reuters) – China is anticipated to report a sharp deterioration in financial exercise in March as COVID-19 outbreaks and lockdowns hit customers and factories, though first-quarter progress might have perked up due to a robust begin early within the 12 months.

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Data on Monday is anticipated to show gross home product (GDP) grew 4.4 in January-March from a 12 months earlier, a Reuters poll confirmed, outpacing the fourth-quarter’s 4.0% tempo due to a surprisingly solid begin within the first two months.

But on a quarterly foundation, GDP progress is forecast to fall to 0.6% within the first quarter from 1.6% in October-December, the poll confirmed, pointing to cooling momentum.

Separate data on March exercise, particularly retail gross sales, is probably going to show an excellent sharper slowdown, analysts say, hit onerous by China’s strict efforts to comprise its largest COVID outbreak for the reason that coronavirus was first found within the metropolis of Wuhan in late 2019.

Analysts say April readings will probably be worse, with lockdowns in industrial centre Shanghai and elsewhere dragging on. Some economists say the dangers of a recession are rising.

The authorities is due to launch the Q1 and March figures on Monday at 0200 GMT, with investor hypothesis mounting over whether or not there will probably be extra strikes to stimulate the financial system.

Late on Friday, China’s central financial institution mentioned it will lower the amount of money that banks should maintain as reserves for the primary time this 12 months, releasing about 530 billion yuan ($83.25 billion) in long-term liquidity.

The transfer was largely anticipated after the State Council, or cupboard, mentioned on Wednesday that financial coverage instruments – together with cuts in banks’ reserve requirement ratios (RRRs) – must be utilized in a well timed approach.

Policymakers want to guarantee nothing goes fallacious earlier than a twice-a-decade assembly of the ruling Communist Party in autumn, when President Xi Jinping is sort of sure to safe a precedent-breaking third time period as chief, coverage insiders mentioned.

But Beijing’s strict zero tolerance coverage on COVID-19 is taking an growing toll on the world’s second-largest financial system, and is beginning to disrupt provide chains globally starting from automobiles to iPhones.

“In the run-up to the Party Congress, we think the central bank will prioritise growth, especially as the COVID battle drags on and housing markets fail to rebound,” analysts at Barclays (LON:) mentioned in a be aware.

Retail gross sales, a gauge of consumption which has been lagging since COVID-19 first hit, probably shrank 1.6% in March from a 12 months earlier. That can be the worst displaying since June 2020, reversing a 6.7% rise within the first two months, the poll confirmed.

Industrial output probably grew 4.5% in March from a 12 months earlier, slowing from 7.5% within the first two months, whereas fixed-asset funding might have expanded 8.5% within the January-March, slowing from 12.2% within the first two months.

The Reuters poll forecast China’s progress to sluggish to 5.0% in 2022, suggesting the federal government faces an uphill battle in hitting this 12 months’s goal of round 5.5%.

Barclays estimates that the second-quarter GDP progress might dip to 3%, dragging 2022 progress to 4.2%, if Shanghai’s prolonged lockdown had been to final for one month and partial lockdowns in the remainder of the nation remained in place for 2 months.

Reflecting weakening home demand and COVID-related logistical snarls, China’s imports contracted in March, whereas exports — the final main progress driver — are displaying indicators of fatigue.

The authorities has unveiled extra fiscal stimulus this 12 months, together with stepping up native bond issuance to fund infrastructure initiatives, and slicing taxes for companies.

But analysts are usually not certain if charge cuts would do a lot to arrest the financial droop within the close to time period, as factories and companies wrestle and customers stay cautious about spending. More aggressive easing might additionally set off capital outflows, placing extra stress on Chinese monetary markets.

“I don’t think this RRR cut (on Friday) matters that much for the economy at this stage,” mentioned Zhiwei Zhang, chief economist at Pinpoint Asset Management, noting it was lower than markets had anticipated.

“The main challenge the economy faces is the Omicron outbreaks and the lockdown policies that restrict mobility. More liquidity may help on the margin, but it doesn’t address the root of the problem. Manufacturers face the daunting risk of supply chain disruptions.

“Unless we see effective policies to address the mobility problem, the economy will slow. I expect GDP growth in Q2 to turn negative.”

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