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Abrupt economic growth slowdown in China


China’s economic growth strengthened slightly in the first two months of 2022, but the rebound was cut short in March.

TRANSCRIPT // Abrupt economic growth slowdown in China : May 2022

The main reason for this abrupt slowdown is the health crisis. In recent weeks, measures to contain the pandemic have been implemented in a large number of regions in China. Measures have ranged from very strict lockdowns disrupting all activities to local restrictions partly affecting consumer spending.

Industrial production growth slowed down in March and most probably in April. Activity in the services sector have contracted slightly. Retail sales have fallen. The crisis in the property sector has worsened again.

The coming weeks will remain complicated. And China will be affected by the indirect effects of the war in Ukraine, through the increase in global commodity prices and the weakening in world trade. These two effects will hit Chinese producers and exporters.

The Chinese authorities are accelerating economic policy easing.

The government is considering major fiscal stimulus measures. They will be partly financed by the carryover of funds that were budgeted but not used in 2021. Moreover, as is often the case in China, stimulus measures will also be covered by local government funds and extra-budgetary entities.

The main measures will comprise new investment in public infrastructure projects and subsidies and tax cuts notably aimed at supporting small firms and the manufacturing industry. Given the weakness of private consumption, measures to support households would be welcome.

Monetary policy and credit conditions have been eased very gradually since Q4 2021, including in the property sector. Social financing growth has slightly picked up.

In the very short term, further monetary policy easing measures are expected. Monetary authorities seem to be willing to remain very prudent, in spite of the severity of the economic slowdown and the deterioration in the international environment.

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