China: Covid outbreaks and real estate, the main menaces

Christoph Siepmann, senior economist at Generali Investments

China’s Q3 GDP growth surprised on the upside with 3.9% yoy. This prompted us to revise our growth forecast to 3.2% for 2022 (from 2.7% before). However, given the repeated Covid outbreaks and the ongoing problems in the real estate sector, which likely also extend into 2023, we revised down our 2023 outlook to 4.8%. We expect China’s economy to stay on a bumpy path (fresh Covid lockdowns reported in major cities) and the real estate sector to improve only gradually.

In contrast to a long-standing tradition of only two terms, China’s Communist Party (CCP) Congress confirmed President Xi for a third period as General Secretary. All fresh members are said to be close Xi allies, instead of representing (as before) different factions of the CCP. The Party Congress typically discuss structural instead of cyclical issues. There are neither stronger signs that the Covid policy will change soon, nor that the government would change course concerning its longer-term de-leveraging policy in the real estate sector. National security was broadly discussed, and “common prosperity” elevated as a core principle to the Party’s constitution. This suggests that the regulatory reform will continue.