The Asian Development Bank lowered China’s GDP prediction owing to its zero-COVID strategy and rigorous lockdowns, which have hurt its struggling housing market. The world’s second-biggest economy’s GDP growth is forecast to reach 4% in 2022, ADB stated Thursday. The bank said China’s “adherence to a zero-covid approach in response to fresh breakouts early in 2022 has caused severe lockdowns.”
The Asian Development Bank lowered its growth projection for China because of its zero-COVID stance and rigorous lockdowns, which hurt the real estate market.
ADB predicts China’s GDP growth will be 4% in 2022, down from an earlier projection of 5%.
China’s “adherence to a zero-covid approach in response to additional outbreaks early in 2022 caused severe lockdowns,” the bank added.
“Many economies in the region are choosing to live with the virus and reopen,” the bank said.
In addition to lockdown-induced weak household consumption, China’s housing market hasn’t stabilized, ADB said.
https://twitter.com/ADB_HQ/status/1549911129027231744?s=20&t=vcNWCzUm0ajXamcB_Faqog
Recent COVID-19 outbreaks have hampered household demand, straining the property market.
Average new home prices in 70 major cities fell by 0.8% year on year in May 2022, despite a cut in the mortgage-rate floor for first-time buyers and a 15-bps cut in the 5-year loan prime rate.
Effect of COVID on Growth
China’s GDP grew by 0.4% in the second quarter, missing expectations as the economy struggled to shake off COVID controls.
The statistics bureau called the latest economic results “hard-earned achievements” but warned of COVID’s “lingering” impact and “shrinking demand” at home.
China has had the greatest COVID epidemic since early 2020.
The central government has decreased the quarantine time and lightened COVID preventive measures in Beijing and Shanghai, although the situation is still unpredictable and constantly observed.
Due to a rise in new cases, China has reinstated COVID restrictions.
President Xi Jinping committed last month to deploy “stronger” measures to meet economic goals.
Experts Degrade
Beijing’s rigorous COVID policy has prompted experts to lower yearly growth projections below the stated aim of 5.5%.
According to Macquarie, in the first half of 2018, China only expanded 2.5% year-over-year. The report said GDP growth must “accelerate to over 7% in the second half of 2022” to reach 5% this year.
The corporation says it’s unachievable without a major increase in policy stimulus.
Morgan Stanley says China needs more stimulus to recover from COVID lockdowns this year.
A Wall Street bank anticipates GDP growth to rise gradually to 2.7% year-over-year in the third quarter and 4.7% in the fourth quarter.
The entire fiscal and quasi-fiscal boost to infrastructure is expected to exceed 7 trillion Chinese yuan ($1.04 trillion) this year, up from 2.4 trillion Chinese yuan last year.
However, Morgan Stanley does not anticipate that the anticipated infrastructure expenditure would significantly affect China’s economy.
“It won’t be sufficient.” For this reason, we believe that the recovery will be uneven. According to Chetan Ahya, the bank’s top economist, “we will need to see COVID limits relaxed in an appropriate way” to achieve a full-fledged recovery.
“We anticipate that will take place later—probably around the end of this year.” But more significantly, it began to manifest in numbers only in early 2024, “he said. ”
Property-related Issues
The housing market in China has been suffering from defaults and mortgage boycotts, as ADB noted in its study, which might possibly slow expansion.
According to estimates from Moody’s, the real estate sector and allied businesses make up more than a quarter of China’s GDP.
“The property industry makes up a significant portion of the economy, and because of this, we do not see policymakers addressing this issue of financing for the property sector,” said Ahya.
He said, “This is still going to be a drag in the second half.”
Evelyn Cheng of CNBC
