Nomura Cuts GDP Growth Call

Nomura note that “owing to rapidly worsening high-frequency activity data in April, the rising number of cities under full and partial lockdowns, severe logistics disruptions, and signs that Beijing is unlikely to end its zero-Covid strategy (ZCS) soon, we have decided to cut our Q2 GDP growth forecast to 1.8% Y/Y from 3.4% currently, which if it materializes would be a marked slowdown from 4.8% in Q1.”

• “In our baseline scenario, the ZCS is kept in place until March 2023 but with some moderate adjustments after the summer. After this, we expect a rebound in growth to 4.5% in Q3 and 4.5% in Q4. As a result, we have cut our annual GDP growth forecast to 3.9% from 4.3% in 2022. We expect a shift to a de facto living-with Covid strategy after March 2023, resulting in a rebound in GDP growth to 5.1% in 2023.”
• “Despite the cut, we still see much higher risk on the downside than on the upside for growth in Q2 as well as H2.”
• “Despite the catching up over the past week evidenced by a rise of USD/CNH to CNH6.45, we believe global markets still underestimate China’s slowdown because much attention has been focused on the Russian-Ukraine conflict and U.S. Fed rate hikes.”
• “In the coming weeks we expect another round of cuts for Q2 and full-year growth forecasts among street economists. Many street economists have already revised down their annual growth forecasts to below 5.0% for 2022 over the past month, while the IMF has slashed its forecast to 4.4% from 4.8%, but the Bloomberg Q2 GDP growth consensus forecast for China is still elevated at 4.6%.”