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China released some important data on its economy last Sunday (15), reinforcing the perspective that the zero-tolerance policy with covid-19 is costing the country dearly.
Chinese industrial production dropped 2.9% in April, reflecting the closure of numerous factories in the country amid lockdowns adopted in important industrial centers. In the last 12 months, industrial production accumulates a high of 4%.
The retreat of Chinese industry is worrying for the global economy as a whole, as China currently supplies products and components that feed global production chains.
With the scarcity of these products, there is a risk of worsening the mismatch between supply and demand around the planet, which could result in a new acceleration of inflation.
Another relevant data released on Sunday was the sharp drop in retail sales in China. With the restrictions, the market already projected a decline of 6.1% in sales in April, but the data came surprisingly worse than expected: the volume of Chinese retail sales fell 11.1% in the month.
With the sharp drop in April, sales decreased by 0.17% compared to the same period in 2021. Weakening retail should contribute to the deceleration of Chinese GDP (Gross Domestic Product) this year, which may come below the target of growth for the period.
Finally, with industry and commerce weakened, China’s unemployment rate rose from 5.8% to 6.1% of the population.
The increase in unemployment among the largest population on the planet also raises concern about the decrease in consumption in the country. It is worth remembering that China imports a series of products from Brazil, such as grains and meat, and if the situation worsens in the second largest economy on the planet, Brazilian companies may suffer the consequences.
So, with these factors in mind, the negative news from China should contaminate the Brazilian stock exchange in today’s trading session — it remains to be seen how big this impact will be.
Read in ‘Investigando o Mercado’ (exclusive to UOL Investimentos subscribers): information about CPFL Energia’s results in the first quarter of 2022, when the company’s profits were boosted by the increase in electricity tariffs.
A hug,
Rafael Bevilacqua
Levante’s Chief Strategist and Founding Partner
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