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China’s economy slowed sharply in April, as the costs of a worsening Covid outbreak and the country’s stringent approach to virus eradication took their toll. Bloomberg’s aggregate index of eight early markers for this month predicts this. The overall index fell below the threshold that distinguishes improving from deteriorating conditions, reaching its lowest level since April 2020, implying that the current wave of epidemics has dealt a serious blow to the economy.
After accounting for the declines in the purchasing managers’ indexes in that month, the March result was revised down from 5 to the neutral level of 4. The almost universal contraction in the PMIs signaled a watershed moment for the economy, as daily Covid cases increased from around 100 to around 8000 per day, prompting lockdowns and restrictions across the country.
Lockdowns in major Chinese cities, including Shanghai, have continued into April, bruising the world’s second-largest economy. The stock market plummeted on Monday after the government ordered mass tests in Beijing and shut down parts of the city.
Consumer spending fell by the most since mid-2020 in March, putting a damper on the services sector. It’s likely that industries like travel and restaurants took a hit even harder in April as more people stayed at home, either because they were forced to or because they were afraid of contracting an infection if they went out.
While the manufacturing sector appears to be less vulnerable than the services sector, restrictions on-road transportation and ports have limited the operations of some firms, particularly in and around Shanghai.
According to Standard Chartered Plc’s survey of more than 500 smaller firms, small business confidence fell to its lowest level in more than two years in April, owing primarily to the impact of large-scale lockdowns. Business sentiment also fell sharply, with the ‘expectations’ sub-index falling to a 26-month low, according to the survey.
Standard Chartered economists Hunter Chan and Ding Shuang wrote in a report that both production and demand at small and medium-sized enterprises saw a “sharp deterioration” in the month, likely weighing on their profitability and investment appetite.
“Long and stringent mobility restrictions slowed business activity in labor-intensive industries, contact-intensive services, and the real-estate sector,” they said.
Despite an easing of rules on buying homes in over 100 cities and government policies encouraging the purchase of big-ticket items such as automobiles and home appliances, home sales have continued to fall this month.
