China’s GDP growth in the second quarter saw a drop to 1% due to the outbreak of the Corona virus, and 2022 growth at 4%

  • China’s GDP for the second quarter saw 1.0% growth year on year, versus 4.8% in the first quarter
  • China 2022 growth at 4.0%, 2023 growth at 5.3%
  • Inflation saw 2.3% in 2022 and 2023
  • saw LPR cut by 10 basis points in Q3 2022

BEIJING (Reuters) – China’s economic growth likely slowed sharply in the second quarter as COVID-19 hit factories and consumer spending, a Reuters poll showed, suggesting policymakers may have to do more to spur a faster recovery.

Gross domestic product likely grew 1.0% in the April-June quarter from a year earlier, according to the median forecast of nearly 50 economists polled by Reuters.

The projected growth will be the weakest since a sharp decline of 6.9% in the first quarter of 2020, when the COVID-19 outbreak in the central city of Wuhan, first detected in late 2019, turned into a full-blown epidemic.

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On a quarterly basis, the survey showed, GDP is expected to decline 1.5% in the second quarter, versus 1.3% growth in the January-March period.

“The second-quarter GDP took another hit from COVID after 2020, although the contraction may not be as severe as before,” said Ni Wen, an economist at the Shanghai-based Hwabao Trust.

“Going forward, the pace of recovery will not be as robust as it was in 2020 due to the continuing impact from COVID restrictions, and exports and the real estate sector could be affected by both external and internal factors.”

Chinese exporters are facing headwinds from a potentially sharp global economic slowdown, as major central banks tighten policy to combat spiraling inflation.

Growth is expected to pick up to 4.8% in the third quarter and 5.1% in the fourth, bringing the full-year expansion to 4.0%, versus 5.0% in a Reuters poll in April.

The government is due to release GDP data for the second quarter along with June activity data on July 15 at 0200 GMT.

Economic growth is expected to rise to 5.3% in 2023.

The economy has begun a tepid recovery from supply shocks from the widespread shutdowns, although headwinds to growth persist, including from the still-weak real estate market, weak consumption and fear of any recurring waves of infections.

Full or partial closures were imposed in major Chinese cities from March through May, including the financial and commercial center of Shanghai, which has shaken supply chains and economic activity.

China is ramping up its political support for the economy, although analysts say the official growth target of around 5.5% for this year will be difficult to achieve without ditching its tough anti-coronavirus strategy. Read more

More support is expected

The government has launched a raft of policies in recent weeks, cutting corporate taxes and directing more money to big-ticket infrastructure projects. Read more

The central bank has pledged to ramp up its support for the sluggish economy, but some analysts believe the room to ease policy may be limited by concerns about capital outflows, as the US Federal Reserve raises interest rates.

“We expect more policy stimulus, with further recovery in credit growth, modest easing of LGFV (Local Government Finance Tool) financing, and further easing in property policy,” UBS analysts said in a note.

“However, the policies announced to date have been modest, and the ongoing (albeit easier) COVID restrictions will likely limit the effectiveness of overall policy support.”

The survey showed that analysts expect the central bank to cut the one-year benchmark loan rate, the benchmark lending rate, by 10 basis points in the third quarter.

The People’s Bank of China (PBOC) is likely to keep the bank’s reserve ratio (RRR) — the amount of cash banks must hold as reserves — steady for the rest of 2022, according to the survey.

The poll showed that consumer inflation is expected to accelerate to 2.3% in 2022, up from 2.2% in the April forecast but still below the official target of around 3% before stabilizing at 2.3% in 2023.

(For other stories from Reuters’ Global Long-Term Economic Outlook Poll Pack 🙂

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polled by Anant Chandak, Swathi Nair in Bengaluru and Jing Wang in Shanghai; (Kevin Yao reports). Editing by Jacqueline Wong

Our Standards: Thomson Reuters Trust Principles.

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