China: A lopsided recovery to further deepen Covid scarring
We have cut our China growth forecast to 3.2% in 2022, from 4% previously, reflecting dismal Q2 growth and the absence of new stimulus. The bigger issue, however, is China’s dynamic zero-Covid policy, which, as long as it persists, seems likely to crimp private-sector growth.
What you will learn:
- In our August baseline, we still expect a pickup in q/q growth in H2, reflecting demand driven by existing stimulus, notably via infrastructure spending, and more generally a normalization of activity after the Q2 lockdowns. But with no new stimulus in H2 to offset the weaker-than-expected Q2 outturn, we have reduced our 2022 growth forecast to 3.2%.
- The key to a stable economic recovery is whether, and when, China can budge from its zero-Covid policy. Though authorities continue to fine-tune policy to reduce supply-side disruptions caused by lockdowns, demand is unlikely to recover sufficiently as long as risks of restrictions remain.
- Real estate remains the key medium-term risk to China’s economy. While containing real estate leverage is beneficial to a sustainable, albeit slower, long-term growth, the process will be bumpy, and the risk of a hard landing in real estate is likely to haunt the economy for some time.
Tags:
Related posts
Post
Tariffs take a toll despite easing trade hostilities
Global tradeflows remain under pressure despite easing tariff tensions. Recent US–China agreements reduce select import taxes and support China’s 2026 outlook, yet US imports continue to fall and supply chains pivot toward Asia and Europe. Containerised trade is set to expand, while bulk shipments soften alongside weaker industrial demand.
Find Out More
Post
Why have China’s exports held up so well under higher US tariffs?
China's exports have adapted, rather than retreated, under higher US tariffs. It will be difficult for businesses and consumers to decouple from Chinese exports or China-linked supply chains.
Find Out More
Post
China’s export transition reorders regional supply chains
China’s emerging roles as both a critical intermediate goods supplier to global supply chains and a dominant producer of high value-added goods will remain the key forces sustaining its large current account surplus, far more so than the eventual direction of US tariffs.
Find Out More
