Asian markets fell Thursday as investors fretted over fresh spikes in virus infections around the world and the re-imposition of lockdowns, while forecast-busting economic growth data out of China was unable to break through the unease on trading floors.

While markets have been rallying since hitting their low points in March – thanks to government support and the easing of lockdowns – traders have had to juggle hopes for economic recovery with the reality of a deadly virus that is sweeping the globe.

Geopolitical tensions, particularly between China and the US, were also fanning uncertainty.

Beijing said the world’s second biggest economy expanded 3.2 per cent in the second quarter, much better than the 1.3 per cent tipped in an AFP poll of economists, indicating that China is well on the road to recovery after months of lockdowns that caused a first-quarter contraction.

However, while the reading was welcomed, analysts said investors had largely priced-in a recovery and pointed to a worse-than-expected drop in retail sales in June – a small rise had been forecast – suggesting that consumers are still reluctant to spend.

The retail sector has taken on an increasingly significant role in China’s economy as leaders look for consumers, rather than trade and investment, to drive growth.

Stephen Innes at Australia-based AxiCorp Financial Services Pty Ltd said: “No matter how much stimulus and fiscal sugar you try to entice consumers with, they will not leave their apartment and go on a spending spree until they feel confident the landscape is virus-free.”

Shanghai plunged more than four per cent, extending a recent sell-off after soaring around 15 per cent this month, with analysts suggesting funds working for authorities on the mainland are selling shares to avert another bubble and bust similar to the one seen in 2015.

Hong Kong lost two per cent and Sydney and Singapore fell 0.7 per cent with Seoul 0.8 per cent lower. Taipei, Bangkok and Wellington also fell, although Mumbai, Manila and Jakarta rose.

London, Paris and Frankfurt were all down in early trade.

Investors are growing increasingly worried about a surge in infections in several countries that had been reopening their economies confident they had controlled or tempered their outbreaks.

On Thursday, the head of the International Monetary Fund (IMF) warned that the world economy was “not out of the woods”, despite signs of improvement, with challenges including a possible second wave of infections.

IMF managing director Kristalina Georgieva said in a blog post that the $11 trillion in stimulus provided by Group of 20 (G20) nations helped to prevent a worse outcome, but “these safety nets must be maintained as needed and, in some cases, expanded”.

Oil markets dropped after rallying more than two per cent Wednesday on signs of a huge drawdown in US inventories, which boosted demand hopes.

Investors were also looking to an expected pick-up in output from major producers, who have embarked on a massive output cut since earlier this year to fight a global glut that sent prices crashing below zero.

However, the Opec+ grouping expects the increase in oil will be offset by improving demand and compensatory reductions by countries that had not made big enough cuts previously.