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China Q1 consumption lags in key coastal provinces; Q2 off to weak start

China’s first-quarter retail sales lagged in key coastal economic regions with areas hit by COVID-19 outbreaks showing particular weakness, according to regional data, pointing to further sluggishness in consumption in the second quarter.

China’s two biggest provincial economies – Guangdong province in the south and Jiangsu province near Shanghai – posted retail sales growth of 1.7% and 0.5%, respectively, from a year earlier, according to recent data from local statistics bureaus, below nationwide retail sales growth of 3.3%.

Retail sales in Shanghai, China’s most populous city, dropped 3.8% as the metropolis battled its most serious COVID-19 outbreak. Cases of the Omicron variant began emerging in the financial powerhouse in March, and the impact is widely expected to be particularly severe in the second quarter after a prolonged city-wide lockdown followed in April.

In Tianjin, a major port city near Beijing that was hit by an Omicron outbreak in the first quarter, retail sales contracted 3.9%.

The worst COVID-19 outbreaks since 2020 and tough restrictions on activity and mobility weighed on already weak consumer sentiment in the first quarter, hammering contact-intensive service sectors such as transportation, accommodation and catering.

This weakness was reflected in China’s first-quarter gross domestic product, which grew only 4.8% compared with the government’s full-year growth target of around 5.5%. The economy was also hurt by slowing trade, a property downturn, and uncertainties over global supply chains during the Russia-Ukraine war.

“The pace of household spending growth softened in the first quarter and is likely to have weakened further at the start of the second quarter as virus controls were tightened,” Capital Economics wrote in a note on Tuesday.
“But a reasonable recovery is still on the cards, as long as new outbreaks are contained, given how depressed activity has been in many areas.”
Bucking the consumption weakness, the southern province of Jiangxi posted a retail sales jump of 8.9% in the quarter.
It also led in January-March GDP growth among all provincial-level jurisdictions that have reported data so far, after remaining largely COVID-free until mid-March.

Twenty-eight of mainland China’s 31 provinces, regions and municipalities have released first-quarter economic data. Jilin, Xinjiang and Tibet had yet to publish theirs as of Tuesday.
Source: Reuters (Reporting by Ellen Zhang and Ryan Woo; Editing by Edmund Klamann)

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