China | A bumpy recovery amid “zero Covid” and real estate crash

Summary

July’s indicators, namely retail sales, industrial production and fixed asset investment, all fell below their previous readings and significantly missed the market expectations, posing challenges to the whole year growth outlook.

Key points

• Key points:
• China’s economic recovery path since Shanghai lockdown measures lifted on July 1st seems to have been quite bumpy.
• The recent growth dip is partially policy-driven, as the authorities gave up the 5.5% growth target and to accept a more practical lower growth rate in 2022, indicating the previous easing monetary and fiscal measures may become more prudent going forward.
• China’s economic recovery also stalls on the real estate crash due to the previous housing market crackdown and weak consumption recovery due to the “zero Covid” restrictive measures imposed in the past almost three years.
• Except for the above July economic activity indicators, credit indicators also trended down significantly from the previous readings and sharply missed the market consensus, suggesting a weak demand amid growth slowdown, a real estate crash and the PBoC’s more prudential measures.
• Amid the plummeting credit data in July and growth deceleration, the PBoC cut the median-term lending facilities rate (MLF) and Repo rate both by 10 bps today, signaling the determination of the central bank to continue to stimulate growth but will be in a more prudent way.

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