Structural constraints on China’s growth are now meaningful limits on the effectiveness of Beijing’s counter-cyclical policy measures to stimulate the economy this year. The property sector’s extended slowdown remains the most significant factor impacting China’s economy in 2022, and will overwhelm a pickup in infrastructure investment. Near-term cyclical data will improve in Q3 as COVID restrictions are likely to ease on balance, but the recovery should lose momentum later in the year. Interest rates should continue declining as Beijing attempts to boost credit demand. Lower rates should add to pressure on China’s currency, which has already been slow to respond to recent USD strength.
