China's Economy Cools Sharply in April as Lockdowns Bite

Fixed asset investment, a main driver that Beijing is counting on to prop up the economy as exports lost momentum, increased 6.8% year-on-year in the first four months, compared with an expected 7.0% rise.

The extended lockdown in Shanghai and prolonged testing in Beijing are adding to the concerns about economic growth over the rest of the year, said Nie Wen, Shanghai-based economist at Hwabao Trust.

"It's still possible to achieve a GDP growth of around 5% this year if COVID curbs are only going to affect the economy in April and May. But the virus is so infectious, and I remain concerned about growth going forward."

HARD-TO-ACHIEVE GOAL

Analysts say Beijing's official 2022 growth target of around 5.5% is looking harder and harder to achieve as officials maintain draconian zero-COVID policies. Moreover, the key property market is in a protracted slump and export growth has slowed to a two-year low.

The economy grew 4.8% in the first quarter.

China's financial authorities said on Sunday they will let banks cut the lower limit of interest rates on home loans based on the corresponding tenor of the Loan Prime Rate for first home purchases, a move to support housing demand and promote healthy development of the country's property market.

ING analysts are looking for a 1% contraction in economic growth in the second quarter from a year earlier, while Nomura said the Chinese economy has been facing a rising risk of recession since mid-March.

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Capital Economics is now forecasting full-year Chinese growth of just 2%, and says if COVID cannot be controlled even that is not guaranteed.

"Even once the current virus wave is quashed, COVID controls will continue to hold back activity to some degree over the coming quarters," it said in a note on Friday.

While policymakers have repeatedly pledged more support for the slowing economy, stimulus so far has been "underwhelming", with only small policy rate cuts, it added.

China's central bank rolled over maturing medium-term policy loans while keeping the interest rate unchanged for a fourth straight month on Monday.

Nie said authorities would be cautious in rolling out quantitative measures like large-scale cuts to interest rates or banks' reserve requirement ratios to spur the economy, given concerns about U.S. interest rate hikes and a depreciating Chinese currency, but structural and targeted measures, such as in the property sector, would be preferred.