China: Lockdown fears eclipse positive results in fundamentals – UOB

Economist at UOB Group Ho Woei Chen, CFA, assesses the latest set of data releases in the Chinese economy.

Key Takeaways

“China’s Jan-Feb data surprised strongly on the upside, suggesting that the policy easing measures are working through. Despite the strong start to the year, the Russia-Ukraine conflict and worsening domestic pandemic warrant a more cautious outlook.”

“China’s ‘dynamic zero-COVID’ policy is expected to come at a significant cost to the economy. The question is now the extent of lockdown in terms of the number of cities and duration of the lockdown.”

“In consideration of the increased near-term headwinds, we have lowered our growth forecast for China to 4.9% for 2022 from our previous forecast of 5.2%. We expect to see the impact of the lockdowns and higher commodity prices from Mar with 1H22 GDP likely at around 4.5% y/y before picking up to 5.2% y/y in 2H22.”

“We still maintain our forecast for the benchmark 1Y LPR to fall by another 15bps to 3.55% by the end of 2Q22. There is also possibility for a further cut in the reserve requirement ratio (RRR) to help lower the funding costs for banks.”