China’s economy is hit by the Delta surge

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The Chinese economy was hit by the Delta virus outbreak in August, adding to signs of slowing growth in the second half of the year and fueling speculation about increased central bank support.

Official surveys of purchasing managers showed the service sector contracted for the first time since February last year, as consumers cut spending and travel amid new virus restrictions. The manufacturing purchasing managers index edged down, in part due to supply chain disruptions.

Beyond virus outbreaks, China’s recovery is also showing signs of slowing down following recent regulatory crackdowns and weak domestic demand. The central bank has signaled it could provide more targeted support – such as reducing the reserve requirement ratio for some lenders – while the government has pledged to step up budget spending in the second half of the year, helping to dampen growth. .

“The service industry has been shocked by the Delta variant, continuing the current theme of a patchy recovery,” said Raymond Yeung, chief economist for Greater China at Australia & New Zealand Banking Group.

High-frequency data tracked by Bloomberg’s early indicators also shows the recovery is stabilizing. Several economists have already downgraded their growth forecasts for this year, although the expansion is still expected to exceed the government’s modest target of more than 6%.

China’s non-manufacturing PMI plunge into contraction in August shows that the impact of the Delta outbreak has been much more severe than expected. The fall was triggered by weak services, even as political support boosted construction.

There was a broader recovery health insurance. The government has imposed strict measures, including travel restrictions, mass testing and quarantines, for about a month to bring a new wave of Covid cases under control, the most widespread outbreak since the initial outbreak of 2020.

Small business confidence weakened during the month and consumers cut back on spending. The partial closure of China’s second-largest container port has also disrupted trade.

“Today’s data again reflects the disproportionate and asymmetrical shock to the services sector from the Covid-related restrictions,” said Liu Peiqian, Chinese economist at Natwest Markets in Singapore. While there is room for a rebound in the services PMI in the coming months, as the epidemic is now under control, any future national-level Covid epidemic will continue to weigh on the sector, he added. she declared.

Bloomberg


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