Nomura Cut GDP Growth View, Note Impact Of Any RRR Cut May Be Limited

Nomura note that “surging Covid cases, worsening lockdowns across a rising number of cities, and a firm recommitment to the zero-Covid strategy (ZCS) by governments are dashing hopes for a fast reopening.”

• “As we have indicated over recent weeks, the recently announced 20-point fine-tuning measures could be more than offset by local officials more zealously implementing Covid restrictions.”
• “Both high-frequency data and our in-house lockdown index show that growth is being constrained once again. We now expect Q4 sequential growth to sink to -0.3% Q/Q SA from 3.9% in Q3, and we cut our Q4 GDP growth forecast to 2.4% Y/Y from 2.8% (Q3: 3.9%).”
• “We accordingly revise down our 2022 annual GDP growth forecast to 2.8% from 2.9%.”
• “We also lower our 2023 annual GDP growth forecast to 4.0% from 4.3%, as we see more prolonged damage from Covid to both the supply and demand sides.”
• “Following a meeting on 22 November, the State Council issued a memo this evening stating that it will use monetary tools such as reserve requirement ratio (RRR) cuts at an appropriate time to support the real economy, which is being impaired by surging Covid cases and frequent, partial lockdowns.”
• “Based on the State Council’s track record regarding RRR cuts, we believe it’s likely the PBoC may cut RRR by 25bp for most banks in the next couple of weeks (or even days).”
• “Such a move is likely to only have a limited positive impact, as we believe the real hurdle for the economy lies in local officials’ more zealous implementation of Covid restrictions rather than insufficient loanable funds. In our view, ending zero Covid as soon as possible is the key to raising credit demand and bolstering growth.”