Daiwa Securities lowers China’s economic growth forecast to 3% from 4.5%

 

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Daiwa Securities lowered its forecast for China’s economic growth this year to 3% from previous projection of 4.5% growth and next year’s forecast was cut from 4.5% to 2.5%, according to a report on Thursday, citing re-deteriorated fundamentals of the global economy, stagflation, a strong dollar, geopolitical tensions and lingering debt and housing problems.

China is still weathering with many unresolved headwinds this year, where debt-deflation remains strong, being a major impasse to China’s demand recovery, it said.

China’s economic growth slowed by 0.4% year over year in the second quarter, and the export growth, which has been the sole growth engine since mid-2020, no longer drives the economic growth due to recession and stagflation in the US and Europe, it said.

China’s zero Covid policy has made its current problems more challenging, it said, noting that it’s unknown whether the policy will be changed after the Chinese Communist Party congress that normally takes place in October or November.

As major central banks raise interest rates which accelerates capital outflows from China and other Asian economies, the Chinese yuan’s exchange rate is expected to reach 6.9 per US dollar by the end of 2022 and 7 per dollar by the end of next year, the bank said.