The near-term outlook has deteriorated

The National People’s Congress concluded today with a pledge of policy support for the ailing economy from Premier Li. The next dose could come next week, when the PBOC has a chance to lower its MLF interest rate. More easing will be needed to achieve the “stability” that the government is aiming for. Soaring commodity prices are a drag both domestically and on consumers in key export markets. And the “dynamic clearing” approach to COVID management is facing its most severe test yet. More stringent restrictions may soon be needed. While we expect the government to publish figures showing that it has met its “around 5.5%” growth target, we now think that the economy may grow by only 2.5% this year.