After a soft Q4 outturn, most key indicators from the statistical office suggest a stronger start to 2022: January–February readings for industrial production, investment and retail sales were notably above market expectations. That said, the data is slightly difficult to reconcile with the ongoing steep property market downturn, and figures from other sources have been less rosy: The Caixin services PMI fell through February to a six-month low, while credit data slowed in February. Economic prospects darkened heading into March, as surging Covid-19 cases led to widening lockdowns across the country, affecting tens of millions of people. Plus, the Ukraine conflict has led to much higher global commodity prices, which could feed into domestic inflation. In politics, the government recently set a 5.5% GDP growth target for 2022, implying further stimulus measures ahead.
Growth is seen easing notably this year from last, amid a limp property sector and cooling export growth. That said, a ramping-up of stimulus measures should provide some support. Risks abound, chiefly the government’s tough stance regarding new Covid-19 cases, a deepening of the property crisis, and the Ukraine conflict—which could cause China-U.S. ties to fray further. FocusEconomics panelists expect GDP to expand 5.0% in 2022, which is down 0.1 percentage points from last month’s forecast. In 2023, the panel foresees GDP expanding 5.2%.
Consumer inflation was unchanged at 0.9% in February, while producer inflation fell to 8.8% in February from January’s 9.1%. Consumer inflation is seen higher than its current level later this year on the recent surge in global commodity prices. However, stop-start Covid-19 restrictions are a downside risk. In contrast, producer inflation should ease on a base effect. Our panelists forecast that consumer inflation will average 2.2% in 2022, which is unchanged from last month’s estimate. In 2023, our panel sees inflation averaging 2.3%.
The PBOC kept its key policy rate levers unchanged over the last month. That said, policy easing is highly likely ahead, in light of disappointing February credit data, the darkening economic panorama at home and abroad, and the slightly ambitious 5.5% growth target. Many panelists see cuts to the 7-Day Reverse Repo Rate and 1-Year Loan Prime Rate by year-end. Panelists project the 1-Year Deposit Rate to end 2022 at 1.49% and 2023 at 1.48%. • The PBOC allows the yuan (CNY) to trade within 2.0%, in either direction, of a daily reference rate. On 18 March, the yuan traded at CNY 6.36 per USD, down 0.6% month-on-month. The currency is seen weakening slightly by the end of this year, amid a projected cooling in external demand and as diverging monetary policy stances between China and the U.S. favor the USD. Our panelists see the yuan ending 2022 at CNY 6.46 per USD and 2023 at 6.43 per USD.
Report from Focus Economics April, 2022
