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China growth will slip to 4% in 2022 says Bank of America

By Debabrata Das

03:13, 24 December 2021

Chinese worker in a factory
Chinese worker in a factory – Photo: Shutterstock

Strong headwinds on domestic demand mean that China’s economy is likely to grow at only 4% in 2022, a three percentage point decline from this year, according to analysis from Bank of America.

“We maintain our below-consensus growth forecasts for China at 7.7% and 4.0% in 2021 and 2022, respectively,” the bank’s analysts said in a note. 

“While market consensus has shifted down to 5.4% yoy (year-on-year) for 2022, well below the 6.7% average annual growth in 2015 - 2019, we think the hurdle of keeping growth above 5% next year is quite high,” the analysts added. 

Weak Chinese investment

BofA’s analysts pointed to weak investment momentum and sluggish credit expansion in the Chinese economy to conclude that there are still issues with the East Asian country’s macro outlook. 

 “We believe the potential rebound in sequential growth from the lowest level in 3Q21 will be more shallow than the market expects, especially given the time it takes for more easing measures to be deployed,” the analysts said. 

While most global economies have been affected by supply constraints and labour shortages in recent months China has avoided these. 

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Chinese power crunch

The country’s biggest economic issue over the last quarter was a power crunch which BofA’s analysts said had been overcome via top-down intervention such as limiting the power supply to energy-intensive sectors such as metals smelting. 

Instead, China faces issues relating to weak demand, which has been softening domestically since the second quarter of 2022. BofA’s analysts’ property investment and retail consumption are the key areas of weakness for the Chinese economy with respect to demand.  

“In our view, the hope for demand stabilisation hinges on effective policy easing to stabilise the property market and reboot credit expansion,” the analysts said. 

“We expect another year of fiscal and monetary easing in China to support demand-side recovery,” they added. 

Read more: China creates rare earth minerals mining behemoth

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The difference between trading assets and CFDs
The main difference between CFD trading and trading assets, such as commodities and stocks, is that you don’t own the underlying asset when you trade on a CFD.
You can still benefit if the market moves in your favour, or make a loss if it moves against you. However, with traditional trading you enter a contract to exchange the legal ownership of the individual shares or the commodities for money, and you own this until you sell it again.
CFDs are leveraged products, which means that you only need to deposit a percentage of the full value of the CFD trade in order to open a position. But with traditional trading, you buy the assets for the full amount. In the UK, there is no stamp duty on CFD trading, but there is when you buy stocks, for example.
CFDs attract overnight costs to hold the trades (unless you use 1-1 leverage), which makes them more suited to short-term trading opportunities. Stocks and commodities are more normally bought and held for longer. You might also pay a broker commission or fees when buying and selling assets direct and you’d need somewhere to store them safely.
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