(Bloomberg) -- China’s economy started the first two months of the year on a strong footing, although risks are growing as the number of local coronavirus cases surge and global energy prices spike due to Russia-Ukraine tensions.
Industrial output grew 7.5% in the two months through February, figures from the National Bureau of Statistics showed Tuesday, compared with 4.3% in December. Economists had expected 4% expansion.
Retail sales rose 6.7%, accelerating from 1.7% in December and beating a 3% increase projected by economists. Investment climbed 12.2% during the two-month period, better than the 5% estimate and last year’s 4.9% growth. The surveyed jobless rate rose to 5.5% last month.
“Overall the economy had good recovery momentum in January and February,” the NBS said in a statement. However, the “external environment still remains complex and grim, and there are many risks and challenges faced by China’s economy,” it added.
Data in the first two months are usually distorted by the Lunar New Year holidays and also complicated by the high base of comparison from last year.
China’s benchmark CSI 300 Index pared a loss of as much as 2.9% after the data, with a sub-gauge of consumer staples trimming its decline by more than half. The futures contract on 10-year government bonds dropped 0.25% as of 10:06 a.m. local time.
Property Slump
The economy has been hit hard by a slump in the property market, with official data showing ongoing weakness in the sector. Residential property sales contracted 22.1% in the first two months of the year from the same period in 2021.
The outlook for this year is rapidly worsening amid heightened geopolitical tensions and Covid lockdowns in China, making it even harder for the government to achieve its ambitious growth target of around 5.5% this year.
The People’s Bank of China surprised many by refraining from lowering a key interest rate on Tuesday ahead of the data release. The rate on the one-year medium-term lending facility was left unchanged at 2.85%. A majority of economists in a Bloomberg survey had predicted a 10-basis point cut.
Instead, the PBOC added monetary stimulus by injecting a net 100 billion yuan ($15.7 billion) of funds into the financial system.
Credit expansion slowed in February, data released Friday showed, with a key indicator of home mortgages declining for the first time in at least 15 years despite efforts to boost borrowing by cutting rates and lowering down payments. That meant lending to households had the weakest start to any year since 2016.
The virus outbreaks this month are the worst since the peak of the first wave in Wuhan, and may trigger lockdowns of a larger scale and put much of the world’s second largest economy on halt. The nation has already put major cities including Shenzhen under lockdown, ordered a shutdown of schools and suspension of inter-city bus services in Shanghai, and restricted people in Jilin province from leaving the region.
The economic cost could subtract 0.8 percentage point from the gross domestic product growth rate if the whole of China’s coastal and northeastern provinces impose similar one-week lockdowns, Australia & New Zealand Banking Group (OTC:ANZBY) Ltd. estimates.
(Updates with additional details, comments from NBS.)
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