What: Despite a decline in consumption, analysts expect fashion retail in Shanghai to recover by the end of 2022.

Why it is important: The apparel retail sector which accounts for 24.2 percent of total spending, fell 17.8 percent to 146.177 billion renminbi, or 21.86 billion USD, during a two-month lockdown. Shanghai’s foreign trade also dropped more than 14 percent in May to 275.934 billion renminbi or 41.26 billion USD. Dan Wang chief economist at Hang Seng Bank China believes that macroeconomic policies are expected to stay strong. Beijing has yet to abandon its growth target of 5.5 percent making a rebound more likely.

The fashion sector’s rebound is predicted to recover by the end of the year but will rely on the confidence of young and wealthy consumers. The second half of this year is likely going to show some acceleration in economic recovery, yet the labor market will remain weak. Luxury spending is limited by rising layoffs, slower income growth, and mounting employment pressure for younger generations as unemployment rates reach an all-time high in the last four years.

Discounts remain in line with the season, as many brands are hesitant to meet the current consumer confidence by lowering discounts further. Kenny Chan, chief executive officer of IT China, remains confident in brands tapping into mainland China.

Bain and Kantar has also released a recent report advising brands to use 2022 to prepare for a strong rebound in 2023 validating an overall optimism around the Chinese market.

Shanghai consumption dropped 18 percent from January to May