Citi raises its forecast for China's GDP growth, bringing it closer to the official target

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BEIJING — China's economy faces so much new pressure from Covid that Beijing may increase stimulus — boosting overall growth, Citi said Thursday.

«Given the strong start of the year and the anticipated government support, we revise up our growth forecast from 4.7% to 5.0% for 2022,» Xiangrong Yu, chief China economist at Citi, said in a report late Thursday.

The new forecast is closer to the official gross domestic product target of around 5.5%, which was announced in early March. For January and February, China reported better-than-expected growth in retail sales, fixed asset investment and industrial production.

The upgrade to Citi's GDP forecast comes on the back of expectations of investment in projects such as infrastructure and affordable housing, according to the report.

The official Purchasing Managers' Indexes — which measure market conditions — for manufacturing and services businesses both fell into contraction territory in March. That's the first time both indexes have done so since February 2020.

«The current Omicron wave is the worst outbreak since Wuhan, but its impact on PMI appears lighter than implied by the severity of the outbreak,» Yu said Thursday. «The data shows that the impact of the containment measures is substantial on demand and services but milder on production and construction.»

«China [is] adapting to minimize the economic costs while implementing the 'dynamic zero-Covid' policy,» he said.

In March, China faced its worst wave of Covid-19 since the initial shock of the pandemic in 2020. Major cities like Shanghai and Shenzhen have had to impose lockdowns and quarantines to control outbreaks of the highly transmissible omicron variant.

The Caixin manufacturing PMI, a