China's annual GDP growth target for 2022 is at its lowest level in more than three decades. Still, concerns are growing among banks that it may even miss that mark.
Global banks across the board are cutting projections for Chinese economic growth, with many citing the country’s restrictive Covid policies as a key reason for the ongoing pessimism.
UBS downgraded its GDP forecast for China from 5 percent to 4.2 percent, according to a note by the investment banking research unit. They saw «intensified downward pressure on the economy» amid little expectation that the government would do «whatever it takes» to achieve the 5.5 percent growth target.
Similarly, other global banks elsewhere have also downgraded their base case forecasts for China’s GDP this year, among them Standard Chartered (5.3 percent to 5 percent), DBS (5.3 percent to 4.8 percent), Barclays (4.8 percent to 4.2 percent) and Bank of America (4.8 percent to 4.2 percent).
Lockdown as a Key Driver
The impact of the current lockdowns and their downrange impact, including general disruptions to supply chains, was unanimously cited as the driver for the revised projections.
According to them, the outlook also looks bleak. UBS does not anticipate a shift in Covid policy anytime soon although it expects some policy support from investment in infrastructure, stronger growth in credit, and easing property sector restrictions.
At Bank of America, the base case is for the Covid imposed restrictions in the Yangtze River Delta – a northeastern region that covers Shanghai – to last at least until the middle of May without any further full lockdowns of major cities or economic hubs. In its bearish scenario, which envisages partial and full lockdowns country-wide, annual GDP growth is expected to come in at a meager 3.5 percent.
Recession Risk
Nomura, however, leads with the gloom-and-doom, as it warned of the possibility of an actual recession in China.
According to a survey by the Japanese bank, at least 373 million people in 45 cities that contribute 40 percent of China’s GDP have been affected by full or partial lockdowns.
«Activity data are set to plummet in April, as risks of recession in Q2 rise,» its analysts said in a note from Nomura’s investment banking unit earlier this week. «Beijing's GDP growth target of [about] 5.5 percent this year is becoming increasingly challenging, and we now see significant downside risks to our annual GDP growth forecast of 4.3 percent.»
Sounding Alarms
Given the severity of the slowdown, even top Chinese officials are sounding the alarm.
China’s Premier Li Keqiang issued his third warning about growth risks in less than a week, encouraging authorities to have a greater sense of urgency when implementing existing policies.
He also pushed for an acceleration of pro-growth measures, including tax cuts, bond sales, and incentives to maintain employment levels.
Latest GDP Figures
The Chinese National Bureau of Statistics, citing strong growth in January and February, recently reported that GDP in the first quarter of 2022 was up 4.8 percent from the same period a year earlier.
But already then, and even though some control measures were in the process of being relaxed, there were indications of an impending slowdown. This was evidenced by weaker March retail sales (off 3.5 percent), food service income (down 16.4 percent), and property sales (falling 22.7 percent).
China Bulls
But not everyone has lost confidence in China’s growth. Credit Suisse is a notable exception. It predicts that Beijing will not only meet but potentially surpass its national economic growth target.
Credit Suisse's chief China economist Yi David Wang expects China to grow as much as 5.9 percent this year although he could revise his existing projection closer to 5.6 percent once the impact of the Covid lockdowns becomes clearer.
According to Wang, his optimism is driven by the view that the lockdowns hurt production less than consumption. The pace of government and corporate investment growth will remain strong, while housing could recover despite the slump in sales.
