China | Shanghai lockdown effect has not been fully reflected in Q1 figures

Summary

China’s economic outlook of this year has been largely changed from its previous policy-led softlanding story by the recent flare-ups of Omicron and particularly Shanghai’s lockdown. However, this adverse spillover effect has not yet been fully reflected in Q1 GDP.

Key points

• Key points:
• The adverse spillover effect of lockdown in China has not yet been fully reflected in Q1 GDP figures which came out at 4.8% y/y exceeding the market consensus at 4.4% y/y (BBVA forecast: 4% y/y; BBVA MICA forecast: 4.2% y/y).
• March economic activity indicators have confirmed this deteriorating trend of the economy.
• On the supply side, the year-on-year growth of industrial production dipped to 5% y/y from to 7.5% y/y in the previous month.
• On the demand side, both fixed-asset investment (FAI) and retail sales slumped from the previous readings while the economic blow to retail sales amid Omicron flare-ups is particularly severe.
• We believe the Omicron flare-ups and Shanghai’s lockdown will make the authorities’ 2022 growth target of 5.5% very challenging to be achieved; we lowered our GDP forecasting of 2022 from previous 5.2% to 4.5% considering supply chain distortions and consumption slump, with the economic blow particularly severe in Q2.

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