Vanguard's Economic and Market Overview

China -3% Economic growth We foresee China's 2022 growth falling short of our 5% forecast at the start of the year as three priorities clash. A commitment to financial stability and a zero-COVID policy leave policymakers' target for growth "around 5.5%" vulnerable amid a weak domestic labor market and slowing global growth. <2.5% Headline inflation Inflation has increased toward midyear but remains unlikely to reach policymakers' 3% target. Spillover from building global inflation pressures is likely to be offset by the weakening domestic growth picture. Producer price inflation remains elevated but in recent years has had little pass- through to consumer prices. WHAT TO WATCH China's "policy trilemma" China isn't in position to achieve all three of its 2022 goals. We believe that policymakers will remain committed to a zero-COVID policy and maintaining price and financial stability, leaving the growth target vulnerable. Achieve GDP growth "around 5.5%" 2.75% Monetary policy We expect only one further 10-basis-point cut in the one-year medium-term lending facility rate, in line with consensus. We expect intensified policy efforts this year to focus on fiscal policy. Monetary policy is constrained by external and domestic forces: global central banks' tightening paths and a desire not to overstimulate China's property sector. ~5.5% Unemployment rate Our year-end forecast for the unemployment rate is higher than consensus and 100 basis points above the level that would be expected to promote inflation. China's below-trend growth translates to slack in the labor market, with recent university graduates faring worst. Maintain price and financial stability Maintain zero-COVID policy Notes: Figures related to economic growth, inflation, monetary policy, and unemployment rate are Vanguard forecasts for the end of 2022. Growth and inflation are comparisons with year-end 2021; monetary policy and unemployment rate are absolute levels. For institutional use only. Not for distribution to retail investors. Source: Vanguard. V 21 |

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