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China

Asia late to tightening but won’t have to go far

Central banks in India, the Philippines and Malaysia have all raised interest rates for the first time this cycle in recent weeks, and we expect further hikes next week in Indonesia, Korea and Pakistan. But with inflation set to fall back in the second half of the year and growth likely to weaken, tightening cycles are unlikely to be aggressive. Our forecasts are generally more dovish than the consensus.
Asia Drop-In (26th May, 0900 BST/16:00 SGT): Can Asia remain the low inflation exception? Join our 20-minute briefing about the region’s price and policy outlooks. Register here.

20 May 2022

How quickly can activity rebound?

China’s previous COVID outbreaks offer a few clues to how quickly the economy will rebound this time. Even if further large-scale lockdowns are avoided, activity is unlikely to have recovered in full until near the end of the year, with the service sector slower to get back on its feet than industry.
Asia Drop-In (26th May, 0900 BST/16:00 SGT): Can Asia remain the low inflation exception? Join our 20-minute briefing about the region’s price and policy outlooks. Register here.

20 May 2022

A helping hand for the housing market

Today’s reduction to the five-year Loan Prime Rate (LPR) should help drive a revival in housing sales, which have gone from bad to worse recently. But the lack of any reduction to the one-year LPR suggests that the PBOC is trying to keep easing targeted and that we shouldn’t expect large-scale stimulus of the kind that we saw in 2020.

20 May 2022
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China Activity & Spending (Apr.)

The April data were even weaker than expected and are consistent with a sharp contraction in economic activity. Provided that the virus situation continues to improve, the economy should begin to rebound this month. But the recovery is likely to be tepid.

Testing, testing, testing

The outlines of a new, more stringent zero-COVID approach are emerging in China, in the wake of the failure to control infections in Shanghai. If successful, there should be less supply chain disruption than has been seen recently. But greater vigilance will prevent much service sector activity returning to normal. Meanwhile, there is no sign in real-time data on construction activity of any infrastructure push getting underway.

China Bank Lending & Broad Credit (Apr.)

Lending was much weaker than expected last month as lockdowns weighed on credit demand. This should nudge the PBOC to announce further easing measures soon. But the central bank continues to signal a relatively restrained approach.

No good options

Officials are struggling to balance a raft of conflicting goals spanning everything from GDP growth, zero-COVID, exchange rate stability, deleveraging and regulation. We don’t expect much compromise on zero-COVID. In other respects, we expect a fudge: a temporary tempering of regulatory and credit concerns, and enough stimulus to prevent a deep slump. Our forecast for growth this year is 2%. If COVID can’t be controlled, even that isn’t guaranteed.

China Consumer & Producer Prices (Apr.)

Consumer prices rose at a faster pace last month. But inflation remains relatively subdued and there are already signs in the producer price data of upstream price pressures easing. As such, inflation is unlikely to be a constraint on policy action by the PBOC.

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