Fiscal expansion is counteracting lockdowns

CHINA - Report 06 May 2022 by FAN Gang and Chunyang Wang

Lockdowns in Shanghai and other cities since March have interfered with robust economic recovery. GDP rose 4.8% y/y in Q1, up 0.8 pps from Q4 2021, but 0.2 pps lower than in Q1 2021. Industrial output rose 6.5% in Q1, up 2.6 pps from Q4, but down 1 pps from January-February. Investment rose 9.3% y/y in Q1, up 4.4 pps from 2021, but 2.9 pps lower than January-February.

In Q1, consumption rose 3.3% y/y, down 9.2 pps from 2021, and down 0.2 and 3.4 pps from January and February, respectively. In March, consumption fell -3.5% y/y, the first time it entered negative territory in more than one year. Exports rose 13.4% y/y in Q1, down 4.6 and 0.2 pps from Q4, and January-February. Weak exports are more because of foreign weakening demand factors, including the Russia-Ukraine war, and the Fed’s raising of the interest rate.

PPI rose 8.7% y/y in Q1, down 3.5 pps from Q4. CPI rose 1.1% y/y, higher than last year. In March, CPI rose 1.5% y/y, a clear rise from January and February. We expect higher CPI to persist.

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