China’s economy is clearly contracting sharply under the weight of “zero COVID” policies, even though Q1 GDP growth beat expectations and April data showed only a modest decline in industrial output. Consensus expectations have not fully factored in the degree to which China’s economy is weakening this year, or the probability that slower growth will extend into future years. As the gap between this economic reality and rosier expectations closes in the months ahead, we are likely to see significant downgrades to consensus views on global inflation, commodity demand, future carbon emissions, and both direct and portfolio investments in China.
