Economic outlook for the second half of 2022

The first half of 2022 is coming to an end. Looking back at the first half of the year, the downward pressure on economic performance increased due to the complex and severe international environment, the impact of the domestic epidemic and other unexpected factors. In the face of the difficult situation, China has introduced a package of policies and measures to stabilize the economy, and various localities have also introduced supporting measures to boost the number of positive factors in economic operation and enhance market confidence.

The current international environment is still complex and severe, inflation is high, the second half of the economic situation trend? How should China's macro policy respond? On June 26, the reporter of Securities Daily interviewed Qiu Xiaohua, chief economist of Jufeng investment, Zhang Jun, chief economist of Morgan Stanley Securities, Dong Zhongyun, chief economist of AVIC Securities, Chen Li, chief economist of Sichuan Finance Securities, Mingming, chief economist of CITIC Securities, Luo Zhiheng, chief economist of Guangdong Development Securities, Bai Wenxi, chief economist of IPG China, and Xu Yang, chief economist of Hong Kong Zhongrui fund. The eight chief economists generally believe that the GDP growth rate in the first half of this year may be around 3%. In the second half of this year, fiscal and monetary policies need to be strengthened, and the pace of economic recovery will accelerate.

GDP is expected to increase by 1% to 2% year-on-year in the second quarter.

In the face of the complex and severe external environment and the downward pressure on the economy brought about by the impact of the domestic epidemic, on the basis of the original policy measures to stabilize growth, the State Council in May further issued a "solid package of policy measures to stabilize the economy", including 33 specific measures in six areas, all localities are also actively implementing the requirements of the central government, combined with local measures to stabilize the economy. These measures are expected to take effect gradually in June and will promote the economic recovery.

Chen Li said that although the disturbance caused by the previous epidemic has not completely subsided, but the recovery trend of enterprise production unchanged, GDP growth is expected to be 3.5 in the first half of this year.

Dong Zhongyun believes that in June, commercial housing sales showed a significant rebound, which is expected to accelerate the repair of domestic demand. With the continuous landing of the steady growth policy, the economy in the second quarter showed a first down and then up operation pattern, the second quarter GDP growth rate is expected to be below 2%, the first half of the GDP growth rate or about 3%. Under the influence of the continued improvement of the economy and the base effect, GDP growth is expected to pick up significantly in the second half of the year.

"With the steady growth policy, the economy recovered in May." Luo Zhiheng expects GDP to grow by 1% to 2% year-on-year in the second quarter, about 3% in the first half of the year, and is expected to return to 5% in the third and fourth quarters, showing a V-shaped trend throughout the year.

Qiu Xiaohua also believes that the economic recovery trend can be seen from the May data. GDP is expected to grow by 1%-2% year-on-year in the second quarter. GDP growth must reach 7 percent in the third and fourth quarters to ensure that GDP growth remains above 5.5 percent for the year as a whole.

Mingming believes that my country's economy faced greater difficulties and challenges in the first half of the year, and GDP only achieved a growth rate of 4.8 in the first quarter. Since the second quarter, many economic indicators have fallen into the negative growth range in April and May. In this case, my country has taken effective measures in a timely manner. Since May, logistics and supply chain problems have been significantly alleviated. With the gradual implementation of support measures for investment and consumption, it is expected that the GDP growth rate in the second quarter is expected to achieve a slight positive growth.

The second half of the market focus will focus on policy implementation and transmission

In order to achieve the annual economic growth target of about 5.5 per cent, how will macro policy work in the second half of the year?

"In terms of monetary policy, we should continue to increase financial support for the real economy." According to Luo Zhiheng, further rate cuts could be considered in the second half of the year to reduce real financing costs and boost credit demand. At the same time, more structural tools should be used to unblock the transmission channels from "easy money" to "easy credit", and financial institutions should be guided to increase their support for the real economy, especially small and micro enterprises, scientific and technological innovation and green development.

Dong Zhongyun believes that the rapid tightening of external liquidity will bring certain constraints on domestic liquidity easing, internal liquidity can maintain the current state of abundance, to provide a basis for broad credit, while continuing to appropriately guide the LPR (loan market quotation rate) down, to promote financial concessions to the real economy.

In Zhang Jun's view, the second half of the policy is mainly fiscal-based, more importantly, to open up the monetary policy transmission mechanism to promote monetary cooperation with fiscal policy implementation. May monetary and credit data show that residents and enterprises are not willing to increase leverage, the future in the incremental policy is mainly concentrated on the fiscal side, may issue special government bonds and advance the release of new special debt line in 2023 to increase infrastructure investment.

Dong Zhongyun also believes that fiscal policy could consider issuing special government bonds to expand fiscal spending capacity. At the same time, we should focus on strengthening the financial expenditure in the direction of protecting the main body and promoting employment. For the enterprise sector, we should actively improve the cash flow of enterprises through taxation, subsidies, financing and other aspects. We should speed up the development of local government financing guarantee funds, improve the government financing guarantee system, and provide financial guarantee credit enhancement and liquidity support for enterprises in difficulty. For the residential sector, consideration could be given to further increasing consumer subsidies to residents through the issuance of consumer vouchers and other forms.

"It is expected that the next focus of investors and the market will mainly focus on the implementation of the previous policy and the transmission of the policy." Zhang Jun said, for example, the current interbank market liquidity is abundant and interest rates have been at a relatively low historical level, investors will pay more attention to the future monetary policy transmission mechanism can be opened up, with the implementation of fiscal policy to reverse the downturn in financing demand, and effectively reduce corporate financing costs.

Bo Wenxi said that in the second half of the year, the market generally expects fiscal, monetary and other macro policies to be further forceful. It is suggested that on the basis of accelerating the repair of market confidence, comprehensive measures should be implemented to stimulate the vitality and innovation power of market subjects.

Infrastructure investment is an important tool for steady growth.

At the micro level, where are the key points to promote economic growth? In the view of a number of chief economists, infrastructure investment is one of the important starting points.

"Infrastructure investment is currently an important grip on China's steady economic growth and can improve the potential growth rate of the economy. The 3.45 trillion billion yuan of special bonds that have been issued this year will be basically issued by the end of June, and will be followed by accelerating the use of them to promote effective investment." Chen Li believes that the future of water conservancy is expected to become the key direction of infrastructure investment, one is major water network construction projects, continue to play a leading role in steady growth and employment. Second, the county, rural water conservancy facilities construction andmoderntransformation. In addition, the pilot scope of infrastructure REITs may be further expanded to enhance market vitality.

Since 2022, China's water conservancy construction has been accelerated in an all-round way. According to data from the Ministry of Water Resources, the amount of investment in water conservancy construction completed in the first five months was 310.8 billion yuan, an increase of 54% year-on-year. Recently, a number of major water conservancy projects started. For example, on June 25, the reconstruction project of the Yellow River diversion sluice in the lower reaches of the Yellow River, the Daxingzhai Reservoir project in Hunan Province, and the Baohui River regulation project in Anhui Province started construction, all of which are one of the 150 major water conservancy projects deployed and implemented by the State Council.

Dong Zhongyun said that infrastructure investment needs to expand the field, should be combined with China's direction of increasing scientific and technological innovation and promoting new infrastructure.

Xu Yang suggested that traditional infrastructure should leverage more financial resources to guide the market to enhance confidence in infrastructure investment. At the same time, we will actively encourage the participation of private capital in new infrastructure and stimulate more market investment, so as to achieve stable investment more effectively.

Zhang Jun said that demand can be boosted by promoting consumption and effective investment. For example, the relaxation of car purchase restrictions and exemption of passenger car purchase tax, because of the city's policy to support rigid and improved housing demand, optimize the approval and new construction of a number of large-scale infrastructure projects.

Ming Ming believes that the most critical thing to promote economic recovery at the micro level is to stabilize employment and market players. On the one hand, the number of college graduates this year will continue to hit a record high, on the other hand, the main body of the market is under great pressure. The focus should be on stabilizing market players and creating new jobs.

Imported inflation risk is relatively manageable

Recently, countries have released price data for May, and high inflation has become a common phenomenon. For example, in May, the US and UK CPI rose 8.6 per cent and 9.1 per cent respectively from a year earlier, setting new highs. Among them, U.S. prices rose more than expected, hitting a 40-year high again after March. In this context, whether it will form an imported inflationary pressure on my country is the focus of the market.

"The imported inflation risk facing China in the second half of the year mainly comes from international oil and food prices." According to Luo Zhiheng's analysis, in terms of oil prices, geopolitical conflicts have led to tight international crude oil supply, while OPEC and U.S. shale oil have not significantly increased production. With the recovery of demand such as transportation, oil prices will continue to fluctuate upward. In terms of food prices, geo-conflict, rising costs, climate change and speculative trading may affect the global food supply and demand pattern.

In Ming Ming's view, imported inflationary pressures do exist and are currently relatively manageable.

"In terms of energy, my country's energy structure is dominated by coal, and the impact of oil prices on domestic energy prices is relatively controllable. Recently, my country has effectively guaranteed coal supply and prices have remained stable." Mingming said that in terms of grain, China attaches great importance to ensuring the supply and price of grain, the self-sufficiency rate of domestic staple grain is relatively high, and the weight of grain in CPI is not large. In terms of response methods, as long as the supply and price stabilization measures since the first half of the year are continued, the risk of imported inflation can be effectively controlled.

Xu Yang also holds a similar view. He said, "As China has basically achieved self-sufficiency in food and coal, there is enough room to deal with high inflation in the periphery. Therefore, there is no overall risk in China in terms of imported inflation, and the future impact will not be particularly large, but we need to be vigilant."

Bai Wenxi believes that the current international energy prices and bulk raw material prices are running at a high level and there is a risk of fluctuations. International food prices may reach new highs, and domestic imported inflationary pressures are still not small. To this end, it is necessary to actively respond to enhance the production capacity and supply security capacity of domestic energy products, on the one hand, to promote the diversification of bulk raw materials and imported food sources, on the other hand, to encourage domestic production to stabilize supply, so as to promote domestic price increases to remain within a reasonable range.