Retail sales down, unemployment up as China reports 4.8 per cent growth in Q1

People walk in front of the closed Raffles City shopping mall in Beijing on Nov 11, 2021. PHOTO: AFP

BEIJING - Retail sales plunged to their lowest since the start of the pandemic in China in March amid strict lockdowns across the country, raising further doubts on whether it can meet the economic growth target for this year.

Unemployment has also gone up in the world's second-largest economy, putting further pressure on the government to create jobs as a record number of graduates prepare to enter the workforce.

China's gross domestic product (GDP) grew 4.8 per cent between January and March year on year, figures released on Monday (April 18) showed, surpassing the forecasts of economists of between 4.2 per cent and 4.4 per cent.

The dip in consumer spending and the growth in unemployment in March could spell more trouble for the economy which is already battling disruptions wrought by the government's stringent zero-Covid-19 policy and uncertainties from the Ukraine war, said analysts.

China will face a big challenge in trying to meet the "around 5.5 per cent" GDP growth target set last month, said the analysts, some of whom have downgraded their forecast to 4.8 per cent to 5 per cent for the year.

Last month, consumer spending fell 3.5 per cent compared with the same period last year - the first decline since July 2020, after retail sales shrank for seven months straight due to Covid-19.

Surveyed unemployment went up to hit 5.8 per cent - 0.3 percentage point higher than a month ago and eclipsing the previous high in May 2020 - bringing the overall rate to 5.5 per cent for the first quarter.

The uptick in unemployment was due to a seasonal cycle as workers traditionally changed jobs after Chinese New Year, which occurred during early February this year, Dr Fu Linghui, a spokesman for the National Bureau of Statistics, said during a briefing on the data release.

Still, pressures on employment heightened last month because of limits on industrial production and declining demand for services due to the pandemic, added Dr Fu, who is also director-general of the NBS' department of comprehensive statistics.

Mr Zhang Zhiwei, chief economist at Pinpoint Asset Management, said the latest increase in unemployment had exceeded the early days of the pandemic, a sign that the redundancy problem had worsened in China.

Estimates by the Education Ministry show that a record 10.76 million number of graduates are expected to enter the workforce this year.

When he announced the closely watched economic growth target for the year during the annual parliamentary meetings last month, Chinese Premier Li Keqiang said that achieving it would not be easy.

The task has since been made harder after Covid-19 outbreaks in a number of key cities such as tech and manufacturing hub Shenzhen and financial capital Shanghai.

Dr Fu said that Covid-19 and increasing uncertainty in the global environment such as the Russia-Ukraine conflict weighed on growth in the first three months of the year.

"The country is facing recurring waves of the pandemic in many places, and its impact on the economy is increasing," he said, adding that the economy had remained generally stable nonetheless, and grew steadily in the first quarter this year.

Customers at Uniqlo on its opening day in the Sanlitun shopping district in Beijing on Nov 6, 2021. PHOTO: REUTERS

Economists said China's strong economic performance in the first two months of this year had provided the country with a much-needed buffer for the hit in March.

But the current lockdown in Shanghai, which has severely disrupted logistics in China, sets the second quarter off to a poor start, they added.

They also warned that unemployment may worsen this year.

Dr Tommy Wu, lead China economist at Oxford Economics in Hong Kong, said that the fallout from the lockdown in Shanghai was likely to extend into May.

But Dr Larry Hu, chief China economist at financial services firm Macquarie Group, remained more optimistic, pointing to how consumption might "snap back on pent-up demand" once lockdown measures eased.

"As a result, the Chinese economy might get better in May after getting worse in April," he said.

The latest data showed that investment growth and industrial output slowed down in March from the first two months this year as well. Industrial output rose 5 per cent in the first quarter, slower than the 7.5 per cent expansion in January and February, due to lockdown restrictions on factory activity.

The harsh pandemic measures have also hurt business sentiment, causing investment growth to fall to 9.3 per cent, down from 12.2 per cent, within the same period.

Economists expect more robust policy support to be rolled out by July if the economy does not pick up by June.

Last Friday, China's central bank reduced the amount of money banks must hold in reserve - releasing US$83.2 billion (S$113 billion) into the banking system - to boost lending and help sectors affected by Covid-19.

A bright spot was trade, with the total value of imports and exports growing 10.7 per cent in the first three months this year, compared with the same period last year.

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