China | Growth is recovering from its Q2 trough

Due to the authorities’ expansionary monetary and fiscal policy this year, the economy started to gradually recover in May and June as the lockdown measures in Shanghai came to an end.

Key points

• Key points:
• China’s 2022 economic outlook has been changed from its previous policy-finetuning-led softlanding story to an “Impossible Trinity” risk mode by the second round Omicron outbreak and Shanghai’s lockdown in March and April.
• To sufficiently reflect Shanghai lockdown and other stringent restrictive pandemic measures imposed in Q2, Q2 GDP figure dipped to 0.4% y/y, the lowest since the recovery from the first pandemic wave.
• On the supply side, the year-on-year growth of industrial production surged to 3.9% y/y from 0.7% y/y in the previous month, although marginally lower than the market consensus at 4.1% y/y.
• On the demand side, retail sales also surprised the market to the upside, which elevated significantly from previous -6.7% y/y to 3.1% y/y in June after it bore the heaviest economic blow amid a series of lockdown measures to curb Omicron contagion from March to May.
• In addition, also from the demand side, fixed-asset investment (FAI) maintained its expansionary growth at 6.1% ytd y/y (prior: 6.2% ytd, y/y) with an upbeating manufacturing and infrastructure FAI but a negative real estate investment.

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