China's slowdown set to worsen amid virus curbs, housing crisis

Many banks say even 3% growth unlikely, as effects of drought, weak demand persist

Six months after China's government set ambitious economic targets for the year, growth has slowed so sharply that several major banks do not even think 3 per cent is achievable any more.

Growth projections have come down steadily since March when the official target of around 5.5 per cent was first disclosed.

The consensus in a Bloomberg survey is for the economy to expand 3.5 per cent this year, which would be the second-weakest annual reading in more than four decades.

Forecasters at Morgan Stanley and Barclays are among those predicting even slower growth as risks mount into the year end.

It is not just China's strict zero Covid-19 policy of lockdowns and mass testing that is buffeting the economy.

A housing market collapse, drought and weak demand both at home and overseas have all undercut growth.

Barclays chief China economist Jian Chang last week cut her fullyear growth forecast to 2.6 per cent from 3.1 per cent, citing the "deeper and longer property contraction, intensified Covid-19 lockdowns and slowing external demand".

The cash crunch faced by developers will extend into next year and weak confidence in the real estate market and the economy will hold back any meaningful recovery in home sales, she wrote.

Here is a look at the main risks the economy is facing and what the latest data and alternative indicators say about the outlook for the rest of the year.

FALLOUT FROM VIRUS CURBS

The biggest drag on the economy is the zero-Covid-19 policy, which the government remains committed to despite more infectious virus strains making it harder than ever to control outbreaks.

The virus has spread to every province this year and almost 865,000 people have been infected. Major cities like Shanghai, Shenzhen and more recently, Chengdu, have locked down their populations and shut businesses to curb outbreaks.