By Carol Liao, China Economist, PIMCO
- PBOC cut policy rate by 10bps as growth continued weakening in December, although the impact on growth likely will be limited as credit demand is still constrained by weak housing-related loan demand.
- Government has announced concrete measures to boost infrastructure but modest moves on property and consumption in recent weeks. The support to infrastructure is unlikely to offset the weakness in the property sector and household consumption in 1Q. Housing policies will not reverse course, but correcting the over-implementation and stabilizing not only the supply but also the demand should be the near-term policy priority. More measures are needed to stabilize the property market and help households.
- We expect 1Q growth to further weaken, and more easing measures to come in 1Q to April. However, the economy, in particular the housing market, would further deteriorate before getting better. It will take more time and easing efforts for the housing market sentiment to normalize. The NPC meeting in March will be a key event to announce detailed targets and policy plan for 2022.
- The recent Covid wave appears to be abating, but travel restrictions and social distancing will likely remain around the Chinese New Year holiday and the Winter Olympic games (up to Feb 20th), which would dent the consumption and service sector recovery.
- China will likely stick to a “zero-Covid” strategy in 2022, despite the increasingly higher economic and social costs. The catalyst for an adjustment could be the breakthrough of treatment, or more concrete scientific conclusion on the low fatality/hospitalization rate of Omicron. With these conditions, the government could reconsider the “zero-Covid” strategy after the 20th Party Congress in October.
