The risks to our forecasts would mainly come from Covid-related uncertainties, especially domestic restrictions, the magnitude of the property downturn and the scale of policy support. In the case of longer-lasting tight Covid-19 restrictions or a deeper property downturn, GDP growth in 2022 could drop to 4%. Meanwhile, any upside, either from stronger exports or faster relaxation of Covid policy, will be limited, as China would limit macro policy support in that case. The events below are not our baseline forecasts but possible surprises:
The biggest uncertainty is still the Covid-19 pandemic and related restrictions. Contrary to our baseline, China’s Covid-19 restrictions may stay as tight as now for longer or even tighten further, either due to the spread of the new variants or a more cautious government stance than expected. In which case, more cities may experience lockdowns, inter-regional and inter-city travel may be widely restricted, and offline activities may be suspended for longer. This would lead to weaker labor market and consumption recovery, and possibly some disruption in production or ports, though overall impact on China’s supply chain should be limited. On the upside, though less likely in our view, a full coverage of booster shots combined with highly effective anti-Covid drugs and/or a sharp decline of Covid-19 infections would likely lead to faster and broader easing of Covid-19 restrictions, prompting a stronger consumption recovery.
