- JPMorgan says China will need to inject more monetary stimulus to protect its economy from the spread of COVID.
- Strategist Kerry Craig says the country will need extra support to achieve its growth target once restrictions ease.
- Any stimulus won’t be heavy-handed and would be more managed as China is in a “delicate position,” he Craig told CNBC.
JPMorgan says China has multiple targets to hit this year and it will need stimulus measures to achieve them.
Speaking to CNBC’s “Squawk Box Asia” on Monday, JPMorgan global market strategist Kerry Craig said China is seeking to achieve 5.5% growth for the economy, tame the spread of coronavirus infections through its zero-COVID policy, and support the housing market.
“China is in a very delicate position”, he said. “That trifecta of things doesn’t seem like something that is going to balance out easily. We’re going to expect to see more targeted stimulus measures.” He said the measures could come in place once COVID restrictions around Beijing and Shanghai ease.
Craig said extra support for the economy would allow people to go out and spend money instead of staying at home and possibly add to inflationary pressures.
“They are trying to achieve that 5.5% growth rate,” he said. This is China’s lowest growth target since 1991.
China is experiencing a surge in COVID cases and imposed strict lockdowns in Shanghai in March and ramped up restrictions in Beijing as the government pursued its aggressive zero-COVID policy. That means rapid lockdowns, mass testing, and travel restrictions.
Business activity shrank in the manufacturing and commercial hub of Shanghai and the broader global economy, as factories were shuttered and workers were confined to their homes. Restrictions in Shanghai will ease from June 1, Reuters reported.
China’s economic growth has slowed, with official data showed a sharp fall in economic activity in the past month as the lockdowns took hold, the Guardian reported. Retail sales in April shrank more than 11% from a year earlier, the biggest contraction since the initial coronavirus outbreak in March 2020.
The People’s Bank of China last week also lowered its five-year loan
prime rate
, used to price mortgages, to 4.45% from 4.6% to support the property sector by reducing loan costs.
Fitch Ratings this month cut China’s 2022 forecast GDP growth further, to 4.3% from 4.8%, “amid extensive disruption to the economy from tightening COVID-19 controls.”
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