China economic growth forecasts cut as record Covid-19 infections darken outlook

The likely delayed Covid-19-zero reopening may shave almost 1 percentage point off China’s GDP growth next year. PHOTO: REUTERS

BEIJING – The outlook for the world’s second-largest economy is darkening as China reports record high Covid-19 infections and sends cities nationwide into localised lockdowns, mass testing and other curbs.

The likely delayed Covid-19-zero reopening may shave almost 1 percentage point off China’s gross domestic product growth (GDP) in 2023, according to Oxford Economics.

If China pushes back its economic reopening to the first half of 2024, an anticipated recovery in private consumption will be delayed, wrote Oxford Economics senior economist Louise Loo in a Friday report. This may knock almost a full percentage point off the firm’s projected growth forecast of 4.2 per cent for 2023.

“Risks to our near-term macro outlook have clearly tilted to the downside,” Ms Loo said in the report, referring to the negative economic impact from surging Covid-19 cases in recent weeks. The firm currently expects a broad reopening to take place in the second half of 2023.

China announced earlier in November measures to optimise Covid-19 controls, raising hopes that the authorities were taking more action to reduce economic damage from the curbs before a gradual reopening in 2023.

However, recent spikes in cases have led many places to revert to their old playbook of restrictions. This has left major cities, including Beijing and Guangzhou, at a standstill and hurt optimism over a reopening.

Nomura Holdings on Thursday lowered its forecasts for China’s economic growth for 2022 and 2023, citing a “slow, costly and bumpy” reopening of the country as Covid-19 cases surge.

This year’s estimate was cut slightly to 2.8 per cent from 2.9 per cent, while 2023’s projection was lowered to 4 per cent from 4.3 per cent.

The forecasts are below the median estimates of 3.3 per cent for 2022 and 4.8 per cent for 2023 in a Bloomberg survey of economists. 

China’s reopening in 2023 could be “back and forth” as officials may backtrack if Covid-19 cases skyrocket, Nomura said. The investment bank’s lockdown index suggests that 21.1 per cent of China’s total GDP is now under lockdown, up from only 9.5 per cent at the end of October.

The recent flare-ups have also increased the uncertainty of Oxford Economics’ estimates of China’s growth, Ms Loo said.

If the impact on the economy comes at a similar magnitude to that in the second quarter of 2022 when financial hub Shanghai was locked down, the firm’s forecast for 2022 growth will be cut to 2 per cent to 2.5 per cent, from the current 3.1 per cent, she said. BLOOMBERG

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