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China Lowers Rates As The Economy Shows Signs Of Weakness

As statistics indicated, the economy unexpectedly slowed down in July due to Beijing’s zero-COVID policy and the housing crisis. China’s central bank slashed key lending rates in an unexpected move on Monday to boost demand.

 

The dismal data show that the second largest economy in the world is having trouble recovering from the economic damage that tight COVID regulations caused in the June quarter, leading some experts to lower their forecasts. According to the National Bureau of Statistics (NBS), industrial production increased by 3.8% in July compared to a year earlier, which was less than the 3.9% rise in June and the 4.6% increase anticipated by experts. Retail sales increased 2.7% from a year earlier, falling short of expectations for 5.0% growth and the 3.1% rise witnessed in June. Retail sales had just recently resumed growing in May.

 

Will The Chinese Economy Recover Anytime Soon?

According to Julian Evans-Pritchard, senior China economist at Capital Economics, the July statistics show that the post-lockdown rebound lost pace as the one-off lift from reopening wore out and mortgage boycotts sparked a further downturn in the property sector.  The People’s Bank of China has already increased support in response to these challenges. However, this will probably not be enough to stop future economic downturns because credit growth is shown to be less sensitive to policy relaxation than in the past.

 

Following the data release, local markets gave up previous gains, the yuan fell to a one-week low versus the dollar, and the Australian and New Zealand currencies declined from recent two-month highs. Due to the lockdown of Shanghai’s commercial center, a worsening slowdown in the real estate market, and consistently low consumer spending, China’s GDP avoided contracting in the June quarter. Many Chinese cities, including industry hubs and well-known tourist destinations, implemented lockdown measures in July in response to new outbreaks of the highly contagious Omicron strain of the coronavirus.

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