Bloomberg’s index of eight early economic indicators shows that the second-largest economy weakened significantly in December and the outlook for the new year 2023 is not very rosy
China’s economy continued to slow in December amid many Covid-19 outbreaks breaking out and spreading across the country. Economic activity has contracted sharply as people stay home to avoid infection or recover from illness.
Bloomberg’s index of eight early economic indicators shows that the second-largest economy weakened significantly in December and that the outlook for the new year 2023 is not very rosy.
While there is currently no reliable data on the extent of the spread or the number of cases and deaths, one thing is certain: Covid-19 had spread in every province of China before the country decided to stop large-scale testing. China has now lifted almost all of its blockade measures, but even before the restrictions were lifted, the economy was struggling.
According to BloombergNEF, Beijing’s subway system handled 3.6 million commutes last Thursday, down 70% from the same day in 2019. Traffic volume on the city’s streets has also reached just 30% compared to January 2021 levels. Other major cities such as Chongqing, Guangzhou, Shanghai, Tianjin and Wuhan recorded similar declines.
Sales of homes and cars have fallen sharply in the past month. In 2022, the car market was a bright spot, supported by government subsidies, but sales started to decline in December as consumers were not enthusiastic. That hit industrial production again, with vehicle production dropping for the first time since May, when many factories were forced to close.
Unlike in the spring, when the Zero Covid policy led to parts shortages and some factories had to close, production is now at a standstill because many workers are sick.
The high number of infections suppressed optimism in stock and commodity markets after China reopened. The Shanghai Industrials Index has fallen almost to pre-November 11 levels for two consecutive weeks.
Meanwhile, iron ore prices also fell sharply. The high number of infections creates a “dark cloud” that covers the short-term outlook and affects the effectiveness of measures to support the real estate market.
Negative indicators reflect a sharp decline in small business confidence, although there has been a small improvement since November.
According to Standard Chartered economists Hunter Chan and Ding Shuang, the manufacturing sector has received some positive signals with new orders, sales and production all increasing. However, the services sector continues to face headwinds due to weakening consumer confidence amid the current high number of infections.
While the domestic macroeconomic environment was not favorable, international trade activity also continued to weaken in December. With the first data on Korean exports not so rosy, Chinese exports may weaken for the third month in a row.
In the first 20 days of December, exports from South Korea to China fell by almost 27%. As the demand for smartphones and other electronic devices decreases domestically and abroad, the demand for Chinese chips has also plummeted.
Source: CafeF
