Morgan Stanley on China’s GDP, the economy in 2022

According to investment bank Morgan Stanley, China’s economy appears to be bouncing from a “mini-fall” to a rebound as the country eases its policy.

The Asian giant had tightened its monetary policy, embarking on an “aggressive deleveraging” as it sought to reduce real estate debt. It managed to reduce the debt-to-GDP ratio by 10 percentage points in 2021, a magnitude not seen from 2003 to 2007, according to Morgan Stanley in a December 21 report.

But the bank said: “The pace of tightening turned out to be too aggressive, given that the recovery in consumer growth slowed due to the Delta wave and China’s continued focus on Covid. -Zero, which kept consumption below trend. “

However, the bank said it was “more optimistic than the consensus” and said that GDP growth in China would accelerate to 5.5% in 2022.

Overall, analysts expect China’s economy to grow at around 5% by 2022. Deutsche Bank estimates growth at around 5%, while Nomura has a forecast of 4.3%. Analysts have also cut their forecasts for China’s GDP in 2021, with estimates ranging from 7.7% to 8.8%.

Here are four reasons why Morgan Stanley expects a “rise” in China’s economy in 2022.

Politicians have already halted their deleveraging efforts and have begun easing monetary and fiscal policies in recent weeks, the bank said.

Morgan Stanley noted that there have been two rounds of cuts in the required reserve ratio recently, releasing liquidity into the economy. This came with a focus on allocating more loans to small and medium-sized businesses, mortgages and developers, among others.

The debacle has also affected the confidence of homebuyers, leading to falling real estate sales.

Morgan Stanley said, however, that the relief comes with a “recalibration” of the policy “now underway.”

For example, banks have been told to increase mortgage lending and lower lending rates, while some cities are easing restrictions on buying property. Authorities have also announced plans to implement a managed debt restructuring process to limit default risks, Morgan Stanley said.

The blow to investor confidence affected the cash flow of developers as funding ran out. But policymakers are now taking steps to ensure that developers’ funding needs are met, Morgan Stanley said. This includes urging banks to increase development lending and lifting restrictions on the issuance of land bonds.

Restrictions on Australian coal imports, China’s plans to reduce carbon emissions and increased exports all contributed to nationwide power outages earlier this year.

Morgan Stanley also noted that energy targets and targets to reduce energy consumption also turned out to be “too aggressive,” as China’s GDP growth is largely dependent on industrial production.

“However, once the issue of coal scarcity has arisen, policymakers have intervened quickly and effectively,” the bank wrote.

There will be a “reset” of those energy targets in 2022, he said.

“We have already seen a rapid change in coal production and availability, with mines being restarted and electricity producers being able to raise prices to cover the rising costs of inputs,” Morgan Stanley wrote.

The bank also said China’s zero-covid approach has prevented disruptions in factory production and even led to an increase in its share of world exports.

A favorable global context should further foster strong trade growth, Morgan Stanley wrote.

The bank noted, however, that a possible factor with which investors are cautious would be whether supply chain disruptions and bottlenecks return to normal next year and China relinquishes its share of exports. world.