The news headlines paint a dismal picture of the Chinese economy — one that is beset with drought and resulting power shortages, Covid restrictions that have crushed consumer confidence to its lowest level since surveys started, a slumping property market and defaulting companies. Youth unemployment is also at a record high and flagging animal spirits among entrepreneurs are hurting investment. And to top it all off, exports which have keep growing, could be poised to falter. It almost seems as if nothing can go right anymore.
There is little doubt that China’s economy is facing its greatest challenge since the 2008 global financial crisis. However, there are some signs that policy support is likely to be stepped up, which could help turn the economy around. What is not clear is how effective that policy intervention will be and what the implications are for the rest of the Asian region. We think China’s economy will pick up momentum in the next few months but that overall economic performance will remain mediocre through 2023.
The bad news — recent developments show an economy in grave danger