China’s economy has been deteriorating sharply this year, with some major banks predicting a growth rate above 3%. The growth forecast could be revised down further if the upcoming economic data is disappointing.
In March, the Chinese government set an ambitious target for the 2022 economic growth rate at around 5.5%. Since then, financial institutions have downgraded their forecasts for China several times.
In the latest prediction, Barclays lowered its full-year growth forecast for China to 2.6% from 3.1% last week.
Barclays’s chief China economist Jian Chang cited deeper and more prolonged real estate contraction, a more intense COVID lockdown, and lower external demand as the reasons for the bank’s forecast.
She pointed out that the cash crunch faced by property developers will extend into next year. In addition, a lack of confidence in the housing market and the economy will also hinder the recovery.
Besides Barclays, analysts at Morgan Stanley also believe China’s growth could slow further as various risks mount at the end of the year.
According to a Bloomberg survey, most experts forecast China’s economy to grow 3.5%. This would be the second-worst annual figure in over four decades, after the 2.3% recorded in 2020.
China is about to release new economic data.
Official data for August is likely to show little improvement in industrial output, retail sales, and investment.
Data for September also doesn’t look any better either. Early indicators show further contraction in the housing market and weaker consumer spending due to COVID-related travel restrictions.
According to Bloomberg’s analysis, the biggest drag on China’s economy is still the Zero-Covid policy.
This year, the pandemic has spread to every province. Large cities such as Shanghai, Shenzhen, and Chengdu have imposed lockdowns and closed businesses to contain the outbreak.
The containment measures have taken a toll on consumers and businesses. China’s consumer confidence index hit its lowest level in nearly ten years in April and has barely recovered since then.
In addition, China just experienced its hottest summer on record. Drought and high temperatures damaged crops, causing power shortages in some areas and curbing factory output in July and August. The power shortages are likely to persist.
Ernan Cui, an analyst at Gavekal Dragonomics, said that the world’s second-largest economy is almost certain to deteriorate in August and may worsen again in September.