China: Positive results from GDP and extra stimulus from PBoC – UOB

UOB Group’s Economist Ho Woei Chen, CFA, assesses the latest batch of Chinese data releases.

Key Takeaways

“China’s 4Q21 GDP growth slowed to 4.0% (1.6% q/q SA) from 4.9% in 3Q21 but beat consensus and our forecasts (Bloomberg est: 3.3% y/y, 1.2% q/q SA; UOB est: 3.5% y/y, 1.4% q/q). Overall, the economy grew by 8.1% in 2021 while the growth in 2020 was revised lower to 2.2% from 2.3%. On average, China’s economy expanded by an annual pace of 5.1% in the last two years.”

“The industrial sector provided much needed support to the economy as private consumption recovery continued to lag. Fixed asset investment moderated but was largely in line with consensus forecast, reflecting the slowdown in property investment. Meanwhile, labour market condition remained stable as the large city surveyed jobless rate stayed at 5.1% for the third consecutive month while the nationwide jobless rate inched marginally higher to 5.1% from 5.0% in Nov.”

“The 10 bps cut to the 1Y medium-term lending facility (MLF) rate this morning reaffirms that the People’s Bank of China’s (PBOC) is stepping up near-term support for growth. It likely viewed that the 5 bps reduction in the 1Y Loan Prime Rate (LPR) in Dec was too small to have any material impact on China’s growth. The 7-day reverse repo rate was also cut by 10 bps to 2.1% from 2.2%. As such, the LPR setting on 20 Jan is expected to see the 1Y LPR reduced by at least another 5 bps to 3.75%.”

“The challenging economic environment in early 2022 including the continuation of the property downturn and ongoing COVID-19 uncertainties will hamper the growth recovery in 1H22. As such, we expect a more moderate GDP growth at 4.7% y/y in 1Q22, 5.0% y/y in 2Q22 before recovering to 5.6% y/y in 2H22 as support measures filter through and households increase spending. Our revised 2022 GDP growth forecast is lowered to 5.2% (previously 5.7%).”