A longer-than-expected Covid Zero reopening may shave almost one percentage point off China’s gross domestic product growth next year, according to Oxford Economics Ltd.
If China pushes back its economic reopening to the first half of 2024, an anticipated recovery in private consumption will be delayed, Oxford Economics’ senior economist Louise Loo wrote in a Friday report. That may knock almost a full percentage point off the firm’s projected growth forecast of 4.2% for 2023.
“Risks to our near-term macro outlook have clearly tilted to the downside,” Loo said in the report, referring to the negative economic impact from surging Covid cases in recent weeks that have led to broadening lockdown measures across the country. The firm currently expects a broad reopening to take place in the second half of next year.
China announced earlier this month measures to optimize Covid controls, raising hopes that authorities were taking more action to reduce economic damage from the curbs before a gradual reopening next year. However, recent spikes in cases have led many places to revert to their old playbook of restrictions. That’s left major cities including Beijing and Guangzhou at a standstill and hurt optimism over reopening.
The recent flare-ups have increased the uncertainty of Oxford Economics estimates of China’s growth, Loo said. If the impact on the economy comes at a similar magnitude to that in the second quarter of this year when financial hub Shanghai was locked down, the firm’s forecast for 2022 growth will be cut to 2%-2.5% from the current 3.1%, she said. – BLOOMBERG