China's largest outbreak of Covid infection hampering economic growth

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China's largest outbreak of Covid infection hampering economic growth
- China's largest outbreak of Covid infection since the beginning of the pandemic in late 2019 is hampering tourism and spending during the peak summer holiday, prompting analysts to review their economic growth projections as risks escalate. Authorities rushed to close tourist sites, cancel cultural events and call of flight, as the outbreak connected to highly-infectious delta variant spread within just two weeks to nearly half of China's 32 provinces. At least 46 cities have advised residents to refrain from travelling unless it is absolutely necessary. Alongside recent flooding in parts of the country, latest virus controls will likely curb retail spending and economic growth in the second half of the year. Nomura Holdings Inc. lowered its projection for third-quarter growth to 5.1% from 6.4% previously and sees 4.4% expansion in the final three months of the year, down from 5.3%. For the full year, Nomura cuts its GDP growth forecast to 8.2% from 8.9%. The severe travel bans and restrictions taken by the government have potentially affected China since the spring of 2020, said Lu Ting, Nomura's chief economist for China. "Recent rainstorms and flooding - both worse than expected - necessitate the downward adjustment of our GDP growth forecast for the third quarter. Goldman Sachs Group Inc. said the potential impact on third-quarter growth could be 0.7 percentage points, although it didn't lower its 6.2% growth forecast for the quarter, because uncertainties about the duration of the outbreak were common in those countries. Natwest Group Plc. and Bloomberg Economic Ltd. also see downside risks to their growth forecasts. Even though China has faced sporadic virus flare-ups over the past year, they have been much smaller in scope and were contained quickly. The current outbreak shut all tourist sites in Zhangjiajie, a renowned scenic destination in central China. Other cities in other provinces have closed tourist locations, including Hunan, Jiangsu and Shanxi. Airlines have scheduled 9.8% less seat capacity in China than last week, the second decline in row based on data from the OAG scheduling specialist Inba. Capacity stands now at 95.7% of 2019 levels. It's the first time in five weeks that carrier has offered fewer seats in the country than they did in the comparable pre-pandemic period. The current outbreak adds to a fragile recovery in retail sales and weighs on increasing headwinds to economic growth in the second half of the year. Analysts are expecting a likely slowdown in exports and cooling of property and infrastructure investment. 'Residents' wage growth was already lagging, and if they can't spend their money due to the outbreak, it will surely be a drag on consumption in the second half of the year, said Bruce Pang, head of macro and strategy research at China Renaissance Securities Hong Kong. Bloomberg Economics estimates retail sales could contract about 0.2% month-on-month in July and August, similar to the impact seen during outbreaks at the beginning of the year in Histile provinces. For the year in a row, retail sales growth will likely fall short of a previous projection of 12%. Authorities are already to warn for slower growth in coming months and have pledged fiscal and monetary support to cushion recovery. This year, the government has envisaged GDP growth of more than 6%. Production has been spared a nationwide lockdown of the kind that slammed the economy in early 2020. Even so, the chances of another reserve requirement ratio cut to cushion the blow to the economy are increasing - and consumption could use a little such insurance. Qingdao International Beer Festival, China's largest beer festival, was cancelled early, while the Yunnan Province in southern Yunnan province called off the Torch Festival, a local tourist event. More than a dozen music festivals have been closed or cancelled in various cities, and cinemas had to be cancelled in Nanjing, Zhangjiajie and Lianyungang. The latest outbreak has spread to Beijing despite the capital city's stringent measures, with authorities taking steps Tuesday to ban passenger from 23 regions including Zhengzhou, Nanjing, Yangzhou, Shenyang and Dalian. The financial hub of Shanghai reported a virus case this week. Cases haven't been found in areas with heavy industrial or export activity so far, which means the impact on production should be limited, said Iris Pang, chief economist for Greater China at ING Bank NV. If there are cases in important cities that represent new locations of services or manufacturing, it would impact economic activities, she said.