China: GDP now seen expanding 4.1% in 2022 – UOB

Economist at UOB Group Ho Woei Chen, CFA, re-assesses the performance of the Chinese economy this year.

Key Takeaways

“China’s economic data were better than expected in May. Industrial production has shown greater resilience as it returned to expansion but retail sales contracted for the third straight month. Fixed asset investment slowed but is expected to benefit from accelerated infrastructure investment rollout in the later part of the year.”

“The labour market remains of concern as the urban surveyed jobless rate has stayed above the official target of 5.5%, at 5.9% in May. Meanwhile, the 31 major cities jobless rate climbed further to a fresh record high of 6.9% in May from 6.7% in Apr.”

“Taking into consideration of the data released, we think China’s economy will avoid a contraction in 2Q22 which we are now expecting growth of around 1.0% y/y (1Q22: 4.8%). Thereafter, a lower comparison base and government’s stimulus will boost GDP growth to slightly above 5% y/y in 2H22.”

“While the data in May were better than expected and we expect activities in China to pick up further, China’s zero-COVID policy will continue to pose downside risks to its economic recovery in 2H22. Furthermore, there is now increasing headwinds to global growth as higher inflation is prompting central banks to step up their monetary policy tightening which will inevitably slow the economies. Our revised forecast for China’s GDP growth is now at 4.1% for 2022, down from previous projection of 4.9%.”