Despite disruptions and restrictions, steady recovery predicted for China with uptick in domestic consumption
- As the pandemic eases, China’s economy is expected to stabilise later this year, so investors should be selective with their portfolios
- Economic performance and investment sentiments have also been affected by the ongoing Russia-Ukraine conflict and US-China trade war
China’s reported GDP growth of 4.8 per cent in the year’s first quarter may have defied expectations – but the momentum is unlikely to be sustained due to the sudden spread of coronavirus. The five-week lockdown of Shanghai disrupted business activities and the supply chain. While the restrictions have been eased gradually, analysts believe the country’s economy will only recover in the second half of the year.
China’s goal of becoming a high-income status economy by the end of its 14th five-year plan (2021-2025) is likely to remain unchanged, but due to the uncertainty, investors should be selective in their portfolios.
Carlos Casanova, senior economist for Asia at UBP, said the extended lockdowns will be one of the main headwinds affecting China’s economic growth in 2022. The first quarter’s growth is expected to decline in sequential terms in the second quarter, with March-May marking the weakest months of the year.
Casanova said the gradual easing of social-distancing measures and incremental policy support will enable the economy to stabilise at around 5.5 per cent in the second half. “Infrastructure investments and capital expenditure of state-owned enterprises will continue to be a main driver of activity. Additionally, an inflection point in terms of policy support and a normalisation in intercity mobility is likely to allow for a recovery in consumption in the second half.
