Nomura: The Politburo Softens On Growth Target While Keeping ZCS

Nomura note that “according to the meeting memo, the Politburo vowed to stick with the zero-Covid strategy (ZCS), and for the first time it explicitly mentioned politics is a particularly important factor to consider when handling the relationship between Covid controls and socio-economic development. This lends support to our view that Beijing will maintain ZCS, at least until March 2023, when the current political reshuffle is fully completed. Beijing also called for efforts to stabilize property markets and ensure the delivery of pre-sold homes, in line with our view that Beijing may need to address the mortgage boycott issue some time in H2, with additional easing measures introduced to help the property sector escape the vicious cycle. Although the memo did not directly mention whether Beijing will abandon the GDP growth target of “around 5.5%” for this year, or specify the growth target for H2, it signalled that GDP growth targets for provinces with less favourable conditions could be more flexible. We maintain our GDP growth forecasts of H2 2022 and 2022 at 4.0% Y/Y and 3.3%, and still see strong growth headwinds.”