China Economic Outlook. Second Quarter 2022

China’s domestic uncertainties particularly the Covid-19 situation dominate external uncertainties as the main risks for growth. Two Sessions sets growth target at 5.5% and promulgated the stimulus package for 2022 to support growth which is unsynchronized with main central banks’ tightening measures.

Key points

• Key points:
• Economic structure remains unbalanced as the economy depends too much on exports while domestic consumption and investment keep lackluster.
• By contrast with high inflation in the US and the EU, China’s CPI is still at a low level as dipping pork prices in the African Swine Flu cycle dominates the CPI and offsets pass-through effects from high PPI.
• By sharp contrast with the FED speed-up tightening measures of QE Tapering, interest rate hike and central bank balance reduction, China’s monetary and fiscal policy will be more expansionary in 2022 to deal with growth slowdown.
• The main risk focuses on the Covid-19 situation in Shanghai while the impact of the Russia-Ukraine war on the Chinese economy is limited.
• We maintain our 2022 GDP forecast at 5.2%, while highlight the downside risk.

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