China's economy records slowest growth since the start of 2020

Hong Kong (CNN Business)China's economy has recorded its worst quarterly performance in over two years, after months of harsh Covid lockdowns wreaked havoc across the country.

Gross domestic product in the world's second largest economy expanded by just 0.4% in the three months to June 30, compared with the same period last year, according to the National Bureau of Statistics (NBS) on Friday.

That was sharply lower than the 4.8% increase it registered in the previous quarter and far below the 1% growth estimated by economists in a Reuters poll. On a quarterly basis, GDP shrank 2.6%.

It was the weakest performance since the first quarter of 2020, when China's economy came to a near standstill as it battled to contain the initial coronavirus outbreak that started in Wuhan. In that quarter, GDP contracted 6.8%.

For the first half of this year, the economy expanded 2.5%, way below the 5.5% annual target set by the government. Beijing admitted Friday that reaching its GDP goals this year would be hard. 

"There are challenges to achieve our expected economic growth target for the whole year," said Fu Linghui, a spokesperson for the NBS, at a press conference in Beijing. But he expected the economy to rebound in the second half.

Mounting challenges

Chinese policymakers face mounting challenges to keep growth steady, as the country contends with a sharp slowdown in activity due to Beijing's stringent zero-Covid policy, a bruising regulatory crackdown on the private sector, and a real estate crisis that is causingrising bad debts at banks and growing social protests.

Since March, Beijing's uncompromising attitude to stamping out the virus led to months of lockdowns in dozens of cities across the country, including Shanghai, the nation's financial and shipping hub. Millions of residents were confined to their homes, shops and restaurants were closed, and factories were shut, hammering consumer activity and disrupting supply chains.

Authorities began reopening the economy at the start of last month, lifting restrictions in some key cities. The manufacturing and services industries have shown signs of improvement in recent weeks. But Beijing's adherence to the zero-Covid stance has caused huge uncertainty for businesses and dampened investor sentiment. Consumer spending remains weak, while the job market is under significant pressure — youth unemployment hit a new record high of 19.3% in June.