Factory activity in China is recovering as antivirus slows down


China’s factory output rebounded in May, helping to recover from the latest COVID-induced economic slump after controls slashing Shanghai and other industrial centers eased. Industrial production rose 0.7% year-on-year and recovered from the 2.9% contraction in April, government data shows. Consumer spending increased compared to April, but was lower than a year ago.

The data suggests that a “lockdown recovery is underway in most parts of the economy,” Capital Economics’ Sheana Yue said in a report. which aims to isolate every person with the virus, most businesses in Shanghai are closing from the end of March and suspending access or imposing other restrictions on other industrial cities. This fueled fears that global production and trade could be disrupted.

Most factories, shops and other businesses in Shanghai, Beijing and other cities are allowed to reopen, but are expected to take weeks or months to return to normal operation. Economists have cut Chinese growth forecasts to just 2% this year, well below the ruling Communist Party’s target of 5.5%. Some expect activity to contract in the quarter ending in June before a gradual recovery begins.

Consumer spending, weighed down by jitters over the economic outlook and possible job losses, rose 0.05% in May from the previous month, but was 6.7% lower than a year ago. Investments in factories, real estate and other fixed assets increased by 0.7% compared to April. Chinese leaders have promised tax cuts, free rent and other aid to help businesses recover.

“After all this weak data, we can expect the government to respond with more fiscal stimulus,” ING’s Iris Pang said in a report. Export growth, reported last week, accelerated to 16.9% in May from 3.7% in the previous month. Import growth rose from 0.7% in April to 4.1%.

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