Economists Cut China’s Growth Outlook Amid Virus Lockdowns

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Economists polled by Bloomberg have lowered their growth forecasts for China once again, as widespread Covid-19 lockdowns threaten to hold back the economy in the months ahead. 

Gross domestic product will likely expand 4.9% in 2022, down from the previous estimate of 5%, according to a survey of 62 economists compiled by Bloomberg. Second- and third-quarter economic growth forecasts were slashed by 30 basis points to 4.3% and 5.2% year-on-year, respectively.

The outlook for major policy interest rates stayed largely unchanged. Economists expect a 10 basis-point cut in the one-year loan prime rate to 3.6%, and a conservative 25 basis-point easing in reserve ratio requirement in the second quarter.  

“China’s window for further rate cuts is closing fast in the second quarter as the Federal Reserve is poised to be more aggressive in its monetary tightening,” said Bernard Aw, economist for Asia Pacific at Coface SA in Singapore. 

He added that the hesitancy of policymakers to cut rates in April and instead provide guidance for banks to be flexible in lending suggests that support is not being transmitted from lower rates to greater loan growth.

Separately, BNP Paribas SA on Friday said it reduced its projection for China’s growth this year to 4.5% from a previous forecast of 4.9%. 

China’s Covid Zero policy will likely spur a sharp contraction in April and drag on May and June, pushing growth to 3% in the second quarter, analysts including Chen Xingdong wrote in a note.

Despite that likely hit, the economists said they expect the government to maintain its growth target of around 5.5%, and intensify policy stimulus to “provide the necessary economic conditions” in the third quarter ahead of the Communist Party congress. President Xi Jinping is likely to seek a third five-year term then.

“When the new leadership takes office, we expect its focus to shift back to economic development,” the economists added.

Other major points in the survey:

• Forecasts for retail sales growth were lowered to 5.2% from 6% previously in 2022, but a higher growth rate of 7.2% is expected in 2023
• Imports and exports will likely grow 7.1% and 6.6%, respectively, this year, lower than the previous projections
• Factory inflation will likely jump 5.4%, while an expectation for consumer prices to rise 2.2% stays unchanged

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