China’s Economy Slowed Further in August, Extending Gloomy Summer Slide

Beijing's Zero-Covid Policy Continues to Drag on Growth

China's economic recovery stumbled further in August, as the country's strict zero-Covid policy continues to weigh on activity. Key indicators, including industrial production, retail sales, and unemployment, all pointed to a deepening slowdown.

Industrial Production Stagnates

Industrial production, a gauge of factory output, grew by just 4.2% year-on-year in August, the weakest pace since May 2020. Weakness was evident across various sectors, with manufacturing output rising by only 4.1% and mining production slowing to 3.3%.

Retail Sales Plummet

Consumer spending remained lackluster, with retail sales falling by 0.5% year-on-year in August. This marked the first decline in retail sales since April 2022, as Covid-related restrictions and lockdowns dampened consumer sentiment and spending.

Unemployment Inches Up

The unemployment rate in China's 31 major cities edged up to 5.3% in August, the highest since May 2022. The rise in unemployment is particularly concerning, as it indicates that the economic slowdown is starting to impact the labor market.

Zero-Covid Policy Takes Toll

The government's unwavering commitment to its zero-Covid policy is a major factor behind the economic slowdown. The strict lockdowns and travel restrictions have disrupted supply chains, reduced business activity, and dampened consumer confidence.

Risks to Growth Outlook

The latest economic data raises concerns about China's growth outlook for the second half of 2022. The zero-Covid policy is expected to continue to weigh on economic activity, and there are growing risks of a more severe slowdown if Covid outbreaks intensify or if the government tightens restrictions further.

Government Response

The Chinese government has acknowledged the economic slowdown and has taken some measures to support growth. These include fiscal stimulus measures, infrastructure spending, and cuts to interest rates. However, the effectiveness of these measures is uncertain, as the zero-Covid policy remains the primary obstacle to economic recovery.

Impact on Global Economy

China's economic slowdown is likely to have a ripple effect on the global economy. China is the world's second-largest economy and a major trading partner for many countries. A prolonged slowdown in China could reduce demand for exports from other countries and dampen global economic growth.

Conclusion

China's economy is facing significant challenges as the zero-Covid policy continues to weigh on growth. The latest economic data points to a deepening slowdown, with key indicators showing weakness across the board. The government has taken some measures to support growth, but the effectiveness of these measures is uncertain, as the zero-Covid policy remains the primary obstacle to economic recovery.