China GDP forecast to grow 5.1% in 2022: Nikkei survey

China’s economy is expected to expand 5.1% in 2022, according to the average of forecasts from 33 economists in a survey conducted by Nikkei and Nikkei Quick News.

The slumping property market and strict COVID-19 measures are expected to continue acting as headwinds to the growth of the world’s second largest economy.

China’s gross domestic product was forecasted by the economists to grow 3.3% in the October-December quarter of 2021, giving 7.9% for the entire year. The seemingly high full-year forecast is attributable to the steep slowdown in 2020 when the COVID-19 pandemic set in. Starting from a lower base, the economy saw 12.7% expansion during the first half of 2021.

The projected final quarter growth in 2021 represents a meager rise of one percentage point from the preceding quarter, evidence of a lack of momentum in the national economic recovery.

“Continued concerns in the real estate activity and the zero-COVID strategy will keep domestic demand below-trend in 2022,” Francoise Huang, senior economist for Asia-Pacific at Euler Hermes, said. “Policy easing has started, but the economic slowdown could continue into the first half of 2022 before the impact of accommodative measures kicks in more visibly.”

Anti-COVID measures before the upcoming Winter Olympics in Beijing “will put a brake on consumption recovery next year,” Bert Burger, principal economist at Atradius, said.

Growth forecasts for 2022 ranged from 4% to 5.9%. Of the 33 economists, 11, including those at American investment banks such as BofA Global Research, Goldman Sachs and JP Morgan, predicted growth of less than 5% — lower than China’s potential of around 5.5%.

The International Monetary Fund forecasted in October that the Chinese economy will expand 5.6% in 2022, but the Nikkei survey found private economists taking a more reserved view.

Jian Chang, chief China economist at Barclays, who predicted 4.7% growth, noted “a more significant contraction in property sales and investment than earlier expected,” and added that the zero-COVID policy is expected to persist until the Chinese Communist Party’s national congress in the autumn of 2022.

Forecasting growth of around 5%, Shen Jianguang, chief economist at JD.com, said the Chinese economy is likely to face strong downward pressure at the beginning of 2022 but will subsequently improve gradually.

Asked to pick three downside risks from options offered in the survey, many economists opted for “property market troubles” and “new COVID outbreaks and variants.”

China tends to adhere to the zero-COVID policy and halt economic activity to address even a small outbreak of infections.

“Renewed lockdowns weigh on consumption activity and the potential closures of factories in case of COVID-19 outbreaks could lead to temporary growth hiccups,” said Sophie Altermatt, a Julius Baer economist.

Ting Lu, chief China economist at Nomura, said that “China will stick to its zero COVID strategy well into 2022 or 2023.”

Mihoko Hosokawa, research executive at Mizuho Bank (China), said, “As long as the zero-COVID policy is in force, the impact of suspended economic activity, such as area lockdowns and production stoppages to cope with sporadic infection outbreaks, will continue. As a result of the continuation of national seclusion, the recovery of domestic demand will take time.”

Property market risks, symbolized by China Evergrande Group’s financial crisis, also provide risky factors. Property sales and construction activity will remain weak in 2022, and “will have rippling effects from local government finances, real-estate-related sectors such as steel and cement, to private consumption,” said Celia Lam, an economist at the Bank of East Asia.

Tommy Wu, lead economist at Oxford Economics, estimates that the real estate industry, including related sectors, account for 24% of China’s GDP. Although the Evergrande risk is unlikely to turn systemic, Wu said “the downside risk to the property outlook remains significant” as other property developers’ defaults and hidden debts have been exposed.

The administration of President Xi Jinping is expected to prioritize stable management of the economy ahead of the CCP’s national party congress in the autumn of 2022. Government sources told Nikkei that the government is considering setting the 2022 growth target in the 5.5% to 6% range.

Economists are starting to voice expectations of fiscal and monetary relaxation. Fan Xiaochen, director of Economic Research Office (Hong Kong) of MUFG Bank, forecast that the introduction of additional stimulus measures, such as an easing of mortgage loan terms, will help stabilize home prices.

“The government is propping up the property market by such means as easing loan regulations,” said Tetsuji Sano, chief Asia economist at the Asia Research Center of Sumitomo Mitsui DS Asset Management (Hong Kong). He said a draft plan to introduce a property tax could be announced in 2023.”

In December, the People’s Bank of China lowered the loan prime rate, effectively the interest rate for its monetary policy. Many economists in the Nikkei survey said the Chinese central bank is likely to further reduce the LPR and the reserve requirement ratio for banks in 2022.
Source: Nikkei Asia