China's "Whatever it takes" moment?

In the latest in our ‘Q&A with’ series, Yi Xiong, Chief Economist, China reviews the country’s recent economic performance and shares his insights on what policymakers need to do to stabilise the economy.

Q: How much impact have recent Covid outbreaks had on China’s economy?

A: With China only publishing quarterly GDP figures, we estimate that output growth, based on monthly production, retail and trade data, slowed from 6 percent in January and February to 3 percent in March, and further to -2 percent in April. Activity has begun to improve lately but only at a modest pace. We forecast GDP growth will drop to 0.5 percent in Q2 from 4.8 percent in Q1.

Q: What are the main risks to the economy?

A: The three major challenges under today’s low growth environment are (1) rising unemployment rates, especially among the youth; (2) a prolonged property downturn that raises financial stability concerns; and (3) continued RMB depreciation and capital outflows.

Q: What do you think policymakers will do?

A: We think Chinese policymakers will do whatever it takes to stabilise the economy. They are likely to boost vaccine protection and roll out regular testing in bigger cities to prevent future lockdowns. The fiscal stimulus package could be increased to a size comparable to what was delivered in 2020. The PBOC is likely to cut mortgage rates further and encourage bank property lending to support the housing market.

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