Markets tumble as panic grows over China’s zero Covid collapse

MArkets tumbled across the world on Monday as fears of a new Chinese lockdown sparked panic buying in Beijing.

Around £40bn was wiped off the FTSE 100 which dropped 1.9pc, amid concerns over a wave of draconian restrictions to prevent the collapse of China’s zero Covid policy.

Economists warned the world’s second-largest economy may already be in recession, with pain likely to spread to the rest of the globe.

US crude oil fell below $100 a barrel and iron dropped as much as 11pc on expectations of a drop in demand as factories around China are shut for weeks, potentially sparking another wave of severe shipping disruption that will cause goods shortages in the West.

Germany’s DAX fell 1.5pc and the French CAC closed down 2pc, on the day of Emmanuel Macron’s reelection.

Wall Street traded down for much of the day but swung back into the green late on as investors cheered the Twitter deal. The S&P 500 added 0.6pc.

Earlier in the day Shanghai’s CSI 300 fell 5pc to its lowest close in two years.

China is struggling to contain a wave of omicron infections that risk ruining its efforts to keep the country Covid free. Restrictions are already being imposed heavily in Shanghai and other manufacturing hubs, and the authorities announced late on Monday night that they intend to test the entire population of Beijing for Covid three times in a week

Craig Botham, of Pantheon Macroeconomics, estimated that the Chinese economy shrank by 0.5pc in the first quarter of the year and will contract by another 0.6pc in this quarter, meaning it is already in recession. He expects official Chinese figures, which do not always properly account for inflation, to show GDP flatlining in the second quarter.

Mr Botham said the shock from China is “an inflation hit waiting to happen” for the West.

It will be felt across global supply chains “as there is nothing that China doesn’t touch in terms of production. It is going to be everything.”

He said: “You could imagine potentially there might be some offsetting factors because if China is not using shipping, it frees that shipping up for other countries, so other orders might finally arrive from Japan, Korea, Taiwan.

“But then a month or two down the line those factories in those countries are themselves relying on inputs from China. They will find their production interrupted. It is the kind of thing which builds up and gets worse – April, May, June, I imagine it will get steadily worse, in terms of the pressure on input costs and the drag on activity.”

According to data from consultancy Windward, around a fifth of the global container shipping fleet is currently stuck in congestion at global ports, with around a quarter of those in China.

Jacques Vandermeiren, chief executive of Port of Antwerp-Brugges, said the car industry is particularly vulnerable to delays.

He said: “Shanghai is the biggest port in the world. It’s also the port that exports different goods to the world. And especially when it comes to the automotive industry.

“The whole car industry will have to wait before releasing new cars. And you’ll see already if you want to buy a new electric vehicle the waiting time is now going from six or seven months to one year. That’s an immediate consequence of this.”

John Glen, an economist at the Chartered Institute of Procurement and Supply, said the issues at Chinese ports would “almost undoubtedly” cause problems for British manufacturers.

“It may affect the range of choice of products that we have in our shops,” he said, adding that an “absolute” lack of products looked unlikely. He said there was “no cause” for panic buying in Europe.

British companies are scrambling to bring production closer to home, said Martin McTague, national chairman of the Federation of Small Businesses.

He said: “One in seven firms is having to adjust their supply chains to get the goods they need or find prices that are affordable.”

“It’s yet another aspect of operations to worry about as they wrestle with surging utility, fuel and tax costs as well as labor shortages.”

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