Morgan Stanley on China’s GDP, economy in 2022
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One person walks by a coal-fired power plant located in Jiayuguan. Gansu, China. Thursday April 1st 2021.
Getty Images| Bloomberg | Getty Images
According to Morgan Stanley, China’s economy seems to be moving from a mini-downturn into an upswing due to the ease of China’s policies.
As it attempted to reduce debt in the real estate sector, the Asian giant tightened its monetary policies. It managed to cut the debt-to-GDP ratio by 10 percentage points in 2021 — a magnitude not seen since the 2003 to 2007 period, according to Morgan Stanley in a Dec. 21 report.
However, the bank claimed that tightening was too fast, given the fact that consumption growth has been slowed by China’s Covid zero approach and the Delta wave. This kept consumption well below the trend.
The bank stated that it was “more bullish” than the consensus and expects China’s GDP to grow by 5.5% per year in 2022.
Most analysts expect China’s economy will grow at 5% annually by 2022, according to the majority of them. Deutsche Bank projects a growth rate of around 5% while Nomura predicts a 4.3% increase. Forecasts of China’s 2021 GDP have been reduced by analysts. They range from 7.7% to 8.8%.
Morgan Stanley anticipates a “upswing in China’s economy by 2022. Here are four reasons.
1. A pause on tightening
The bank stated that policymakers had already paused their efforts to deleveraging and started to relax both fiscal and monetary policies within the past few weeks.
Morgan Stanley reported that two rounds were made to reduce the reserve ratio, which resulted in liquidity being released into the economy. This was accompanied by guidance on how to lend more to small and mid-sized enterprises and mortgages, as well to developers.
2. China’s realty sector is set for more relief
This debacle also shattered homebuyer confidence and caused property sales to plummet.
Morgan Stanley indicated that, however, the relief will be provided by a “recalibration”, of policies “now well under way.”
One example is that banks were told to lend more money and have lower rates while others are easing restrictions on property purchases. Morgan Stanley reported that the authorities also plan to implement a managed debt restructuring program to minimize default risks.
Developer cash flow was hit hard by the loss of investor confidence as funds dried up. Morgan Stanley said that policymakers have taken steps to meet the funding requirements of developers. This includes encouraging banks to increase development loans and lifting restrictions on offshore bond issuance.
3. 2022: Energy goals that are less burdensome
An increase in imports, China’s efforts to lower carbon emissions, and restrictions on Australian coal imports all contributed to the power shortages that occurred earlier in the year.
Morgan Stanley noted, too that China’s GDP growth is heavily dependent on industrial production.
The bank stated that “however, once coal shortages became apparent, policymakers intervened swiftly and effectively.”
It stated that there will be a reset of these energy targets by 2022.
Morgan Stanley stated that there has been a rapid turnaround in coal availability and production. Electricity producers have been allowed to increase prices in order to offset rising input costs.
4. In 2022, exports will remain strong
According to the bank, China’s zero Covid policy has helped to prevent disruptions in factory production as well as a rise of its global exports.
Morgan Stanley wrote, “A favorable global background should further propel strong trade growth.”
However, the bank pointed out that one factor investors should be cautious about is if disruptions to supply chains and bottlenecks start to normalize in next year, causing China’s share of global trades to drop.
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