China: October results cloud Q4 2022 outlook

Economist at UOB Group Ho Woei Chen assesses the recent set of data releases in the Chinese economy.

Key Takeaways

“China’s macroeconomic data printed largely below expectation in Oct as the economy turned lower. The surge in domestic COVID infections and further decline in the real estate market, along with weakening external demand continued to take their toll on China’s economy.”

“China’s lock-step moves to recalibrate their COVID measures and announce a 16-point rescue package for the real estate market so as to address the two key weaknesses of the economy.”

“While the measures indicate the government is giving more attention to economic growth, any near-term lift to China’s recovery will still be limited due to current record surge in COVID infections in cities such as Guangzhou, Zhengzhou and Beijing as well as its adherence to a zero-COVID policy and remaining stringent COVID measures. The weaker economic data in Oct, in particular the surprise contraction in retail sales, should keep the outlook for 4Q22 cautious. Thus, we are maintaining our GDP forecast for 4Q22 at 4.5% y/y and full-year 2022 at around 3.3%.”

“People’s Bank of China (PBoC) kept its 1Y medium-term lending facility (MLF) rate at 2.75% in Nov and rolled over CNY850 bn of CNY1 tn that expired this month. Further monetary policy easing remains a possibility going forward but current weak credit demand condition likely reduces the effectiveness of further rate cuts. PBoC’s rate hold today suggests that the loan prime rates (LPRs) will also be unchanged at 3.65% and 4.30% for the 1Y and 5Y rates respectively next Mon (21 Nov).”

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