China economy whacked by Omicron curbs and stalling property sector

China’s economy is growing at the slowest pace in a year and a half as the world’s second largest economy contends with a concoction of headwinds, revealed official figures released today.

Gross domestic product (GDP) jumped four per cent over the three months to December compared to the same period last year, the National Bureau of Statistics said.

Although growth has stalled, the latest GDP reading beat economists’ expectations, but fell far short of the 6.5 per cent expansion notched in the final quarter of 2020.

A sharp downturn in China’s real estate sector, triggered by confidence in property developers waning and Beijing launching a strong crackdown on the sector, choked growth. 

Beijing has tightened lending to real estate developers in response to the crisis at debt-laden Evergrande.

A surge in coronavirus cases driven by the Omicron variant sweeping across the country also weighed on economic activity.

Julian Evans-Pritchard, senior China economist at Capital Economics, said: “The downturn in property construction is set to deepen and with supply chains already stretched to capacity, last year’s boost from surging exports can’t be repeated.”

“To make matters worse, more contagious COVID-19 variants mean more frequent disruptions to service sector activity,” he added.

Beijing has continued to deploy a heavy handed approach to clamping down on Covid-19 cases in the face of Omicron, ordering residents of China’s largest cities to lockdown in their homes and shuttering large swathes of the economy.

As a result, consumer spending has pulled back sharply, hitting growth.

Retail sales growth slowed to 1.7 per cent in December, the slowest rate of expansion in over a year.

Poor consumption levels reflect the “beginning of a weakening trend, rather than its end, given the continued spread of Covid and the arrival of Omicron in multiple provinces,” Craig Botham, chief China+ economist at Pantheon Macroeconomics, said.

In response to the weak GDP reading, China’s central bank slashed a key interest rate in a bid to stimulate growth.