The Day at a Glance | May 16 2022

The Top

*A contraction in China`s economy was confirmed during April as a consequence of the country`s recent confinement measures.

*EU warns of slow growth in Europe if access to Russian gas is cut.

*The Swedish government will seek to join NATO today; Russia threatens with consequences for this decision.

*Germany prepares to ban Russian oil imports, independently of joint sanctions from the EU.

Economic environment

Collapse in economic activity in China. Yesterday, negative growth figures were made known in the world`s second largest economy, which revealed the devastating effect that restrictions implemented in efforts to contain the virus had on economic activity in the country. Retail sales receded (-) 11.1% annual, almost double the (-) 6.1% estimated by analysts, and industrial production surprisingly fell (-) 2.9% annual (vs 0.4%e.) during April. Manufacturing activities receded (-) 4.6%. The only figure that didn’t record a setback was fixed investment, which dropped to 6.8% annual in the January-April period after having logged a 9.3% rate of expansion in March. Lastly, unemployment among the young population and the national unemployment rate increased to 6.1%. Despite the fact that the number of cases has dropped considerably in recent weeks, restrictions remain in place due to a cautious stance on behalf of Chinese authorities. With this, economic weakness is expected to continue during May and a fast recovery is not expected to occur. Only Shanghai has announced that some entertainment and consumption centers have reopened (malls, stores), but most restrictions remain in place. During the weekend, the PBOC decided to cut the reference rate for mortgage loans to home buyers from 4.6% to 4.4% to back the real-estate sector, which is still in crisis. Nevertheless, the interest rate remained unchanged in the central bank`s monetary policy meeting held on Monday, a sign that monetary authorities have enough room for maneuver to back the economy – in light of concerns for the Yuan`s devaluation and possible capital outflows.