What: The Chinese government plans an economic support package to stimulate the economy into recovery after strict lockdown measures have left market growth across sectors in contraction.

Why it is important: The luxury retail market is expected to see lacklustre growth as the housing market suffers and COVID-19 restrictions continue to affect China’s overall GDP.

According to a Barclays report, the investment bank continues to favour luxury names with a strong portfolio such as LVMH and Richemont. Luxury sales in Asia-Pacific are expected to climb by around 5% in the second half of 2022. However, cities such as Shanghai, Xi’an, Macau, and Hainan’s Haikou started imposing COVID-19 lockdowns in recent weeks, as the Chinese government is sticking to its zero-COVID-19 policy.

Despite being the world’s second-largest economy, China has the weakest GDP growth since the coronavirus outbreak, only 0.4% year-over-year in the second quarter. Retail sales grew 3.1% in May compared to the same time last year, while in the first half of this year, retail sales contracted 0.7% year-over-year. Apparel retail (clothing, shoes, hats and knitting textiles sales) rose 1.2% year-over-year to 119.8 billion renminbi, or 17.7 billion USD in June, but dropped 6.5% for the first half of 2022. Due to COVID-19-related lockdown measures in recent months, Beijing’s GDP dropped 2.9% in the second quarter from a year earlier, and Shanghai’s contracted a sharp 13.7% in the same period.

To reach the goal of 5.5% GDP growth for 2022, the Chinese government has unveiled a broad package of economic support measures to stimulate the economy, including tax cuts and funnelling money into public infrastructure projects.

Slow retail recovery due to China’s weak GDP