China Needs More Stimulus to Offset Growth Slump, Economists Say

Goldman Sachs Group Inc. economists including Wang Lisheng

The second-quarter figures suggest “a heavier-than-expected toll from the April/May Covid lockdown on China’s growth.” The bank cut its year-on-year GDP growth forecast for 2022 to 3.3% from 4.0% previously.

“We expect further growth recovery through the remainder of this year, but believe the pace will be much less steep than in spring 2020 and the renewed Covid risk in some cities in July could constrain the pace of services sector recovery to certain degree. We maintain our view that fiscal and credit easing may play a more important role in coming months.”

Larry Hu, head of China economics at Macquarie Securities,

“Today’s data suggest that the economy is on the mend, but it remains very weak.” The second quarter should be the trough for this year and it dragged growth in the first six months down to 2.5%, implying GDP expansion has to accelerate to over 7% in the rest of the year to deliver annual growth of 5%. “It is impossible without a significant escalation of policy stimulus from the current level.”

More clues on China’s next policy moves will be observed from the Politburo meeting in late July, “especially whether in that meeting they will remove the statement of ‘striving to meet this year’s target’. Given the large gap between target and reality, most likely they would have to settle for “around 5.5%” only for the second half of 2022.”

Louis Kuijs, Asia Pacific chief economist at S&P Global Ratings

“Given China’s overall Covid stance and the housing market weakness, China’s economic outlook remains underwhelming.” Consumption and services sector remain “relatively weak,” and newly imposed restrictions in several cities are again weighing on the momentum of economic recovery. While exports are supporting China’s production, weak imports reflect “still mediocre” demand trends.

“It remains to be seen whether, in the coming months, the improvement of demand in China is strong enough to offset other global headwinds.”

Nomura Holdings Inc. analysts led by Lu Ting

“We believe markets have become overly optimistic about growth in the second half.” The spread of the highly-infectious BA.5 sub-variant could trigger another round of widespread lockdowns, the refusal by some homebuyers’ to repay mortgages could result in “a vicious cycle” in the property sector, and exports could be hit by a “likely synchronized” global slowdown.

Proper assessment is needed on the policy impact of any plans to step up stimulus due to the government’s commitment to Covid Zero, its “enormous” funding gap, and Beijing’s lack of “a real solution” for the “crumbling” property sector.

Bruce Pang, chief economist and head of research for Greater China, Jones Lang LaSalle

“China’s weaker-than-expected 2Q macro data could add to concerns about rising risk of 1970s-style stagflation or even recession in the global economy. And it is like a boomerang: higher odds of recession in other major economies will pose more challenges to China’s growth momentum.”

Beijing will likely maintain its easing stance and pro-active fiscal policy will continue to play a key role to usher in a “more moderate recovery path” in the second half. Policy makers could possibly front-load some of next year’s infrastructure investment quota, while “mild” domestic inflation would allow the central bank to stick to its accommodative monetary policy, with a focus on boosting credit.

Julian Evans-Pritchard, senior China economist at Capital Economics

“The strong pick-up in activity in June reflects a one-off boost from reopening and the recovery will almost certainly slow in the coming months. Policy stimulus is being stepped up but remains more restrained than in 2020 despite a less favourable economic backdrop.”

While the worst is “hopefully behind us,” economic activity is likely to remain “relatively weak” over the coming quarters. The official GDP growth number may come in at 3%-4% this year, but “the reality on the ground will be closer zero growth.”

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