China's Economy Loses Steam as COVID-19 Erupts, Central Bank Cuts Rates

"Economic momentum remains weak amid repeated virus outbreaks and a struggling property sector. As such, we anticipate another 20 bps of cuts to PBOC policy rates during the first half of this year," said analysts at Capital Economics, in a note.

But Nomura said in a note the space left for future rate cuts this year was small. "We expect another 10 bp rate cut before mid-2022."

Adding to another long-term concern for the economy, mainland China's birth rate dropped to a record low of 7.52 per 1,000 people in 2021, NBS data also showed on Monday, extending a downward trend that led Beijing last year to begin allowing couples to have up to three children.

PROPERTY, RETAIL SALES SLOW

China's property market has slowed in recent months as regulators stepped up a campaign to cut high rates of borrowing, triggering defaults at some heavily indebted companies.

Property investment dropped 13.9% in December from a year earlier, falling at the fastest pace since early 2020, according to Reuters calculations based on official data. Investment grew 4.4% in 2021, the slowest since 2016.

Weak consumption data also clouded the outlook, with retail sales in December missing expectations with only a 1.7% increase from a year earlier, the slowest pace since August 2020.

"The biggest challenge this year for policymakers is how to stabilise the economy at a 5-5.5% range against the backdrop of dynamic zero-COVID policy," said Nie Wen, chief economist at Hwabao Trust in Shanghai.

A bright spot was industrial output, up an annual 4.3% in December, picking up from a 3.8% increase in November, and better than a 3.6% increase in a Reuters poll.

China's refinery output hit a new record in 2021, as did aluminium and coal production.

Fixed asset investment rose 4.9% in 2021, compared with the 4.8% increase tipped by analysts and 5.2% in the first 11 months of the year.

Booming shipments to coronavirus-hit economies overseas were a key boost to China's growth last year, with net exports accounting for more than a quarter of GDP growth in Q4 and the country logging its biggest trade surplus in 2021 since records started in 1950.

The outsized role that net exports played in last year's GDP growth also underscored the relative weakness in other drivers. By contrast, net exports were a drag on overall growth in 2018, when the economy relied more on consumption and investment.

However, the support from export growth may not last. It has been slowing as an overseas surge in demand for goods eases and high costs pressure exporters.

SOURCE: Reuters

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