EDITOR'S NOTE: When Deutsche Bank became the first major bank last week to forecast a global recession, two of the main factors that contributed to their outlook were inflation and slowing global growth. Recent data on China’s economic growth are now showing signs that its engines are sputtering. The reason for this (surprise!) is the pandemic. China is now facing its worst outbreak, forcing the country into another lockdown. If the pandemic doesn’t intensify across the globe enough to pose a major threat to economic growth, then China’s slowdown almost certainly will.
The largest single driver of global economic growth — China — is stalling as its "zero COVID" policy collides with a massive virus outbreak and large-scale lockdowns, Matt writes.
Why it matters: We're all focusing on inflation and the war in Ukraine, but the path of the world economy and global financial markets this year largely hinges on China's economic and public health.
Driving the news: A slew of Chinese economic data out Monday confirmed that the world's second-largest economy has sputtered as the government combats the worst outbreak of COVID so far on the mainland.
- Retail sales tumbled 2% during the month. Compared to March 2021, retail sales were down 3.5%, the worst annual drop since 2020.
- The country's unemployment rate rose to 5.8%, above the government's target of 5.5% and the worst since May 2020, when the country was first emerging from lockdowns after the initial virus outbreak in Wuhan.
- Industrial production slowed sharply in March, as did investment in the domestic real estate sector, which has been a key driver of the country's growth.
State of play: China is in the middle of its worst known outbreak of the coronavirus since the pandemic began in early 2020. The surge in cases, which more than doubled over the last month, has prompted a range of lockdowns.
- They include a hard lockdown in late March in Shanghai, the country's richest and largest urban area.
- Other major cities such as electronics manufacturing center Shenzhen, and port and petrochemical hub Tianjin have also been disrupted.
- J.P.Morgan analysts currently estimate that "areas with full or partial lockdowns accounted for about 25%" of gross domestic product, according to a recent research note.
Yes, but: Official data released Monday showed China's GDP grew a faster-than-expected 4.8% in the first quarter — though that's far slower than the breakneck pace above 10% that prevailed between 2000 and 2010.
Yes, but, but: Some analysts view the GDP numbers suspiciously, given how focused Chinese government officials are on meeting growth targets.
Our thought bubble: China's woes will quickly become the world's problem.
- As it remains an export giant and a crucial cog in global supply chains, Chinese factory shutdowns and logistical disruptions will amplify the already-problematic global price pressures.
What we're watching: The International Monetary Fund's update on the outlook for the global economy — due to be released in a couple of hours — could spell out how much China's economy will drag on the global growth.
Originally published by Axios.