China's economy slows sharply in Q2 as zero Covid takes its toll

Growth in China’s economy slowed sharply in the second quarter as the country’s zero Covid strategy took its toll, according to figures released on Friday by the National Bureau of Statistics.

Real GDP grew by 0.4% year-on-year in the second quarter, hitting a two-year low and down from 4.8% in the previous quarter. Analysts had been expecting 1.2% growth.

On a quarter-on-quarter basis, GDP fell 2.6% following 1.3% growth in Q1 and versus expectations for a 2% contraction.

"Domestically, the impact of the epidemic is lingering," the NBS said, adding that the risk of stagflation in the world economy is rising.

Shanghai was locked down for two months until the end of May, while Beijing was also placed on lockdown several times.

Craig Botham, chief China+ economist at Pantheon Macroeconomics, said: "Zero-Covid is the key culprit for the quarterly weakness, shutting down a swathe of manufacturing for half the quarter, and scything down much of the service sector.

"The monthly data at least points to a rebound underway, which should see activity spring back in Q3. But the property drag is only getting worse, and without more aggressive policy support we think the Q3 rebound will prove short-lived. Covid cases are also edging higher once again, raising the risk of renewed lockdowns. Reaching the 5.5% growth target looks increasingly implausible."