China’s factory production and retail sales remained sluggish in May, with sluggish demand and prolonged Covid regulations slowing economic growth, the second largest in the world, according to official data.

The government continues its Zero-COVID strategy to eliminate clusters when they emerge, but this has left businesses and consumers at the mercy of financially damaging blockades.

According to the National Statistics Bureau (NBS), retail sales fell 6.7% year-on-year in May, an improvement over the 11.1% decline in April.

This figure was also slightly better than the analysts’ predictions investigated by Bloomberg.

“In May, our economy gradually overcame the negative effects of the pandemic,” NBS spokesman Fu Linghui told reporters.

“But we also need to make sure that the international environment is becoming more complex and harsh, and that the domestic economic recovery still faces many challenges and challenges.”

Official data show that retail sales have shrunk for the third straight month, suggesting that nervous consumers are tightening their wallets as the threat of blockades continues.

However, while industrial production fell 2.9% in April and then rose 0.7%, the unemployment rate in cities fell to 5.9%.

Shanghai, China’s most populous city, has boosted its economic situation by breaking out of a two-month strict blockade in June.

“The worst blockade is probably behind us,” speculated Tommy Wu, head of Chinese economist at Oxford Economics.

However, while China’s Zero-COVID strategy is being implemented, “it is difficult for household consumption to recover significantly,” he added.

Meanwhile, according to Zhiwei Zhang of Pinpoint Asset Management, millions of students graduate in the summer, raising concerns about unemployment trends.

According to the data, the unemployment rate of migrant workers in rural areas continues to rise, but home sales in the first five months fell by 34.5%.

Observers remain cautious, despite recent tweaks, as the real estate sector is sluggish and the government is reluctant to move away from the Zero-COVID policy.

“There is no guarantee that a new wave will not hit in the coming months,” Nomura’s analyst said Wednesday.

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