China | The economy gradually bounced back amid policy support and pandemic ease

Summary

The economy seems to gradually recover in May as the lockdown measures in Shanghai came to an end and the authorities have pressed ahead with monetary and fiscal stimulus measures.

Key points

• Key points:
• Chinese authorities face the “Impossible Trinity” of policy setting in 2022 among “zero tolerance” Covid policy, synchronized monetary policy and the 5.5% growth target.
• Amid the lifted lockdown and a series of policy support, May economic activity indicators pointed to a bounce-back of the economic indicators.
• On the supply side, the year-on-year growth of industrial production surged to 0.7% y/y from -2.9% y/y in the previous month.
• On the demand side, retail sales also shrank its negative growth in May while Fixed Asset Investment further moderated.
• On balance, we believe the Omicron flare-ups and the authorities' "zero-Covid" policy will continue to weigh on growth thus, we maintain our GDP forecasting of 2022 at 4.5% considering supply chain distortions and consumption slump.

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