China’s economy faces its worst downward pressure since the spring of 2020 when it was hit by the first wave of Covid-19, according to Nomura Holdings Inc.
The slowdown in China’s growth worsened in the first quarter and markets should be concerned about a further slide in the second, Nomura Holdings Inc. economists including Lu Ting wrote in a note Saturday. Economic activities “may notably deteriorate across the board” in March, weighed down by increasing mobility restrictions across the country and a continued property sector slump, they said.
With the outbreaks suppressing a wide range of sectors, including in-person services, construction and some manufacturing activity, “it’s getting harder for Beijing to achieve its ‘around 5.5%’ GDP growth target for 2022,” the economists said.
The investment bank cut its estimate for China’s growth for April through December, citing the worsening Covid-19 situation. While the economists revised up expectations for expansion in the first three months to 4.2%, they noted that their existing 2.9% forecast may reflect the “real economic situation on the ground quite well.”
The upward revision mainly shows the surprisingly strong official data for the January-February period. It did not lead to a change in the bank’s full-year forecast, which stands at 4.3%.
China’s economy had a stronger-than-expected start to the year, with consumer spending, investment and industrial output all beating forecasts. The outlook, however, has turned increasingly grim as the nation battles its worst Covid outbreak since it emerged in Wuhan two years ago, and Russia’s invasion of Ukraine throws global financial markets and energy prices into turmoil.
Production activities in the country’s tech and manufacturing hub Shenzhen and automotive city Changchun have been disrupted by virus control measures, while residents in the financial center of Shanghai were told to stay at home as the city conducts rounds of mass testings.
China reported 5,600 new Covid-19 cases on Saturday, the most daily infections in more than two years.
Despite the impressive official activity data, the economists wrote, policy makers will likely “further ramp up easing measures to stem what is actually a worsening growth slowdown.” They expect the central bank to cut banks’ reserve requirement ratio by 50 basis points over the next couple of months, and the one-year medium-term lending facility rate and the 7-day reverse repurchase agreements rate by around 10 basis points in April.
It’s also likely that Beijing will allow more local governments to ease local property curbs, they said. –Bloomberg