China April Activity Data Review: COVID Lockdown Dragged on Industrial and Consumer Sectors
byAlex Ng
China's April activity data showed that the economy contracted in April amidst Covid outbreaks and lockdowns, which dragged the industrial and consumer sectors down to the weakest levels since early 2020 as millions of residents were confined to their homes and factories were forced to halt production. Urban fixed assets investment deteriorated less comparatively speaking, likely supported by the government's push to expand infrastructure spending. More fiscal and monetary stimuli are expected but have not yet been large enough
Figure 1: China's Activity Data
Source: CEIC, Continuum Economics
China's April activity data came in weaker than consensus forecasts across the board. Retail sales decline widened from -3.5% y/y in March to -11.1% y/y in April, versus consensus forecast for a 6.6% fall. Industrial production reverted from a growth of 5.0% y/y in March to -2.9% y/y in April, trailing consensus forecast of 1.0% y/y growth. Urban fixed asset investment growth also trailed consensus forecast of 7.0% y/y YTD, coming in at 6.8% y/y YTD in January-April compared to 9.3% y/y YTD in January-March.
The big misses in retail sales and industrial production reflected the known factors of Covid lockdowns. Specifically, restaurant and beverage sales declined by a whopping 22.7% in April, demonstrating the impact of tight lockdowns. Looking forward, however, we believe the worst has passed as cities like Shanghai is currently planning to re-open, with lockdown measures relaxed and factories resuming capacity in May. Even so, the prospects are for a negative Q/Q GDP number in Q2 and a low Yr/Yr figure.
Urban fixed-asset investment stood as the stronger leg as government pushed to expand infrastructure spending. The scope for such spending is questionable as we believe infrastructure spending in China is pretty crowded already with previous reports of wasteful highways and infrastructure projects. Together with the ongoing (though gathering less news attention in recent months) property developer debt crisis, we expect fixed asset investment to come in flat in coming months. Improvement in the economy has to rely on retail sales and industrial production recoveries after all.
Over the weekend, China has announced a further cut in mortgage rate for purchases of first homes, allowing commercial banks to reduce interest rate on home loans by 20 basis points. We believe such announcement is in accordance with the main tone of monetary easing in months to come. On fiscal front, it will be curious to see whether there will be more creative measures beyond infrastructure spending to booster President Xi's vision of common prosperity for China.