Chinese economy rocked by Delta variant and supply chain issues
“The latest surveys suggest that the Chinese economy contracted last month as virus disruptions weighed heavily on service activity,” wrote Julian Evans-Pritchard, senior Chinese economist at Capital Economics, in a note search Tuesday. He added that the decline in the non-manufacturing PMI was entirely due to disruptions in the services sector, as “restrictions on movement have been reimposed and consumers have become more cautious amid the new outbreak of the virus.”
“There continues to be signs of a supply shortage in the survey breakdown, with delivery times stretching further as companies continued to reduce their inventories of raw materials,” Evans-Pritchard wrote. .
However, Covid outbreaks and transportation issues are not all that China faces. Beijing has also embarked on a massive crackdown targeting businesses. Technology, private education and other industries have all been swept away.
The crackdowns – particularly in technology and education – “are impacting both employment problems among those affected and on consumer confidence in general as fears of broader interventions increase. Jeffrey Halley, senior market analyst for Asia-Pacific in Oanda, wrote on Monday.
Evans-Pritchard expected most of the weakness reported on Tuesday to reverse in September, as Covid cases are under control in China. But he said other concerns persist, noting that tight credit conditions are a “growing drag.”
“The result is that even looking at the volatility caused by the recent virus outbreak in China, the economy seems to be coming back to earth,” he added.