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China Economics Update

Struggling for momentum

China’s post-Omicron rebound has fizzled out and the prospects for near-term growth are poor. Virus outbreaks are happening with increasing frequency. The housing market remains in a downward spiral. And exports look set to drop back before long. To make matters worse, credit growth has so far been unresponsive to policy easing. More support is on its way but it will probably be too late too little to prevent output from stagnating this year. And once the economy does return to growth, it will be at a slower pace than in the past.

18 August 2022

China Data Response

China Activity & Spending (Jul.)

The July data suggest that the post-lockdown recovery lost steam as the one-off boost from reopening fizzled out and mortgage boycotts triggered a renewed deterioration in the property sector. We think the outlook will remain challenging in the coming months as exports turn from tailwind to headwind, the property downturn deepens, and virus disruptions remain a recurring drag. Asia Drop-In (25th Aug.): What’s the economic impact of a weak yen? What does the latest China-Taiwan flare-up mean for decoupling? How ugly are conditions in China’s real estate sector? Join economists from across our Asia services for this regular briefing on the region’s big investment stories. Register now.

15 August 2022

China Economics Update

Surprise rate cut amid economic woes

The People’s Bank (PBOC) has cut its policy rates in response to a loss of economic momentum. A cut to the Loan Prime Rate (LPR) later this month is now a given and we expect additional easing measures further ahead, though it’s far from clear that this will be sufficient to drive a revival in credit growth.

15 August 2022

Key Forecasts

Main Economic & Market Forecasts

%q/q annualised (%y/y), unless stated

Latest

Q3 2022

Q4 2022

Q1 2023

Q2 2023

2021

2022f

2023f

2024f

Official GDP

-2.6(+0.4)*

(+4.7)

(+5.3)

(+4.8)

(+8.5)

(+8.1)

(+4.0)

(+5.5)

(+4.5)

GDP (CE CAP-derived estimates)

-2.8(-4.2)*

(+3.2)

(+3.1)

(+2.2)

(+6.1)

(+9.0)

(0.0)

(+4.0)

(+4.0)

Consumer Prices

(+2.7)**

(+2.3)

(+1.5)

(+1.7)

(+0.9)

(+0.9)

(+2.0)

(+1.0)

(+1.0)

Producer Prices

(+4.2)**

(+3.8)

(+0.5)

(+0.5)

(-1.0)

(+8.1)

(+5.0)

(0.0)

(+0.5)

Broad Credit (AFRE)

(+10.7)**

(+11.7)

(+12.2)

(+12.0)

(+11.7)

(+10.3)

(+11.1)

(+10.1)

(+9.2)

Exports (US$)

(+18.0)**

(+3.6)

(-2.2)

(-7.9)

(-12.2)

(+29.9)

(+6.5)

(-10.5)

(-4.0)

Imports (US$)

(+2.3)**

(-3.1)

(-4.2)

(+6.1)

(-0.8)

(+30.1)

(+0.5)

(0.0)

(+1.5)

RMB/$

6.74

6.90

7.00

7.00

7.00

6.37

7.00

7.00

7.00

7-day PBOC reverse repo %

2.10

2.10

2.10

2.10

2.10

2.20

2.10

2.10

2.10

1-year Loan Prime Rate (LPR) %

3.70

3.70

3.70

3.70

3.70

3.80

3.70

3.70

3.70

1-year MLF Rate %

2.85

2.85

2.85

2.85

2.85

2.95

2.85

2.85

2.85

10-year Government Bond Yield %

2.74

2.60

2.40

2.40

2.40

2.78

2.40

2.40

2.40

RRR (major banks) %

11.25

11.00

11.00

11.00

11.00

11.50

11.00

11.00

11.00

CSI 300 Index

4,185

4,200

4,250

4,188

4,125

4,940

4,250

4,000

4,150

Hong Kong GDP

(-1.3)*

(+2.2)

(+5.6)

(+8.3)

(+10.1)

(+6.3)

(+0.5)

(+6.0)

(+1.5)

Hang Seng Index

20,106

20,340

20,500

20,575

20,650

23,398

20,500

20,800

22,700

Sources: Bloomberg, CEIC, Capital Economics *Q2; **Jul.; End of period


PBOC turns less dovish on inflation

China Economics Weekly

30 November 2022

Our view

China’s recovery from the Omicron wave will be far weaker than that in 2020. Outbreak, lockdowns and quarantine remain lingering threats that will make consumers and businesses cautious. The export boom that lifted China’s economy rapidly from its initial lockdown two years ago is going into reverse. Property construction will remain depressed. Meanwhile, although policy support is being stepped up, there is less in the pipeline than fuelled previous recoveries. While many have lowered forecasts recently, we continue to believe that the consensus is too optimistic. We don’t expect the economy to expand at all in 2022 (forecast = zero growth).

Latest Outlook

China Economic Outlook

Reopening rebound set to slow

Activity has bounced back from lockdowns but China’s economic recovery will become more challenging from here on as exports turn from tailwind to headwind and the property downturn deepens. Policy restraint means that stimulus will not fully offset these drags. Drop-In (Thurs, 28th July): Our Emerging Asia and China teams will be discussing what lies in store for the region’s exporters as global recession risks rise. Register here to join this 20-minute online briefing.

28 July 2022