China’s GDP growth forecast for 2022 has been cut by Fitch Ratings from 4.8% to 4.3% in the backdrop of rising coronavirus cases in the country, which led to the adoption of policies that restricted mobility in the important commercial hub of Shanghai aside from broader restrictions across the nation.
The ratings agency has; however, revised its 2023 growth forecast for China from 5.1 percent to 5.2 percent based on the assumption that Beijing would gradually phase out its ‘dynamic zero-Covid’ policy over the next year.
They explained that their forecast is subject to downside risk if containment measures fail to bring new outbreaks under control quickly or if the easing of current restrictions is delayed, and based on the assumption that Beijing would adhere to the ‘dynamic zero’ strictly until 2023.
"Spillover to economic activity from Covid-19 pandemic-related disruption became apparent in March, with retail sales falling by 3.5%, the first YoY decline since mid-2020. Selected sub-components contracted even more severely; for example, catering was down by 15.6% YoY. Other areas of activity, including industrial production and fixed-asset investment, also slowed noticeably, as health and movement control disrupted domestic supply chains and labour availability," Fitch Ratings said in its statement.
It added: “Recent mobility trends suggest that China’s growth momentum deteriorated significantly in April, with traffic congestion, subway passenger volume, and other high-frequency indicators at their weakest since the initial outbreak of the pandemic in early 2020. We expect the disruption to ease this month, as nationwide infections appear to be down from their mid-April highs and the politburo has indicated its desire to improve coordination between pandemic control and economic development. However, we still expect a QoQ GDP contraction in 2Q22, before output recovers in 2H22.”
According to the ratings agency, it is unlikely that China will meet the 2022 GDP growth target on current trends, but policymakers are still committed to the target of around 5.5 percent. However, Fitch is expecting “infrastructure investment to accelerate over coming quarters. Issuance of local government Special Bonds this year was front-loaded, which should support a ramp-up of related spending in 2H22, provided that pandemic-related restrictions are eased”.
Fitch Ratings expects policy easing to boost credit growth. It added: “Our adjusted credit growth measure rose by 10.5 percent YoY in March and should accelerate - given the central authorities’ infrastructure development plans and recent relaxation of housing measures by numerous local governments. Fiscal policy too has also been loosened and we estimate the budget deficit will widen to 5.8% of GDP this year, from 4.4% in 2021, but the resulting increase in government debt/GDP will be modest, at about 2pp. We forecast debt/GDP will remain slightly below 60% in 2022, broadly in line with the ‘A’ peer median.”
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