Why have China's growth projections soured in recent months?
China's economic outlook has deteriorated sharply in recent months. In our latest insight piece, we examine why.
Following the initial spread of Covid-19 in early 2020, China appeared to be the poster child for how to successfully contain the pandemic while simultaneously protecting the economy. As the developed world suffered untold death rates and went into repeated lockdowns, China nipped the virus in the bud early on, and then enjoyed many months largely free of restrictions—strict border closures aside. The Asian powerhouse was the world’s only major economy to record an expansion in 2020, and went on to grow over 8% in 2021.
That has all changed this year. Since January, our analysts have slashed their 2022 GDP growth forecasts by 1.3 percentage points. The most pessimistic prediction among our analysts expects an expansion of little over 2%.
Frequent Covid-19 restrictions are partly to blame. Large swathes of the country have been in and out of lockdown since Q2 as the Omicron variant has spread. In mid-August, cities which together comprise around a quarter of GDP—some USD 4.5 trillion—were classified by the government as medium- or high-risk areas.
But the virus is not the only factor at play. The steepening property downturn—which has been accentuated in recent months by a growing mortgage boycott by homeowners of unfinished properties—is weighing on construction investment and consumer spending. The worst drought in decades is currently leading to power rationing and factory shutdowns in some areas. And slowing economic momentum in developed economies poses a threat to exports.
Going forward, the economic panorama is unlikely to brighten in the absence of a shift in the government’s Covid-19 stance, which is not expected this year. Further downgrades to GDP prospects are to be expected in the coming months as a result, particularly in light of July data which was weak across the board. The memory of the China that conquered Covid-19 and led the global economic recovery from the pandemic is becoming ever more distant.
Insights from Our Analyst Network
On the July figures and their own forecasts, analysts at Goldman Sachs said:
“July activity data confirmed the lack of domestic demand. With a few exceptions, most indicators showed sequential decline from June to July. For housing construction, infrastructure investment and steel production, the sequential declines were double-digit. […] Taking into account the weaker-than-expected July data as well as near-term energy constraints, we cut our Q3 real GDP growth forecast from 17.5% (qoq annualized) to 14.0% […] Our 2022 full-year forecast falls even further below consensus, to 3.0% (from 3.3% previously).”
On China’s Covid-19 strategy, analysts at Nomura said:
“After the party congress [later this year], we expect a further moderation of ZCS [Zero-Covid Strategy] measures, but not a full shift to living-with-Covid yet. Following the March 2023’s National People’s Congress (NPC), the leadership change will be fully completed with the next president, premier and ministers determined. We expect an almost full shift to living with Covid thereafter, even though Beijing might still retain the ZCS in name only.”
Disclaimer: The views and opinions expressed in this article are those of the authors and do not necessarily reflect the opinion of FocusEconomics S.L.U. Views, forecasts or estimates are as of the date of the publication and are subject to change without notice. This report may provide addresses of, or contain hyperlinks to, other internet websites. FocusEconomics S.L.U. takes no responsibility for the contents of third party internet websites.
Author: Oliver Reynolds, Economist
Date: August 29, 2022
TagsBitcoin Lagarde IMF Banking Sector India Germany Economic Outlook Africa interview Portugal Venezuela Eurozone centralbanks Base Metals Euro Area Mexico Israel Canada Housing Market Italy Central America precious metals Argentina Gold European Union Japan Interest rate United Kingdom USA Asean Economic Crisis Brexit Russia Asia Economists Government Bond Resource Curse public debt Greece Company News Political Risk South Africa Asian Financial Crisis Copper Agricultural Commodities economic growth OPEC Australia China Latin America TPP TPI Draghi Trade Base Metals Commodities France scotiabank digitalcurrencies Costa Rica; GDP; Budget Healthcare Inflation Exports Major Economies Forex Ukraine Investment ECB election Cannabis Brazil Cryptocurrency CIS Countries Spain Colombia Canadian Economy chile Oil Nordic Economies Fed GDP Precious Metals Commodities Nigeria Iran Commodities Exchange Rate Energy Commodities oil prices Sub-Saharan Africa Eastern Europe G7 Consensus Forecast United States Infographic UK Emerging Markets Economic Growth (GDP) Vietnam Tunisia Budget deficit MENA Palladium Unemployment rate Economic Debt Turkey TPS
Elevated commodity prices, supply constraints and tight labor markets have spurred global inflation to its current… https://t.co/Bbhrm8gUpJ
1 day ago
Our analysts' forecasts for average 2022 Euro area inflation have risen uninterruptedly so far this year, and now s… https://t.co/0eTYsBY7V9
1 day ago
4 days ago
Elevated prices for fuel will continue to drive inflation in Sub-Saharan Africa, as transport accounts for a large… https://t.co/W2PGPPQgbg
1 week ago
Most large Asian economies will lose steam in 2023, as pent-up demand eases following the lifting of Covid-19 restr… https://t.co/YyvSOSqBI4
1 week ago