Covid outbreak hampering China's economic growth in second half

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Covid outbreak hampering China's economic growth in second half
- China's broadest Covid outbreak 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 cancel tourist sites, call off cultural events and close flights, as the outbreak linked to the 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's absolutely necessary. Alongside recent flooding damage in parts of the country, the 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 cut its GDP growth forecast from 8.9% to 8.2%. Since the Spring of 2020, the draconian measures taken by the government are potentially leading to the most stringent travel bans and lockdown in China, said Lu Ting, Nomura's chief economist for China. In addition, recent rainstorms and flooding - both worse than expected - necessitated a downward adjustment of GDP growth forecasts 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, saying uncertainties about the duration of the outbreak and likely stronger policy support. Natwest Group Plc. and Bloomberg Economics plc. Similarly, you can see downside risks to your growth forecasts. Even though China has had sporadic virus flare-ups over the past year, they have been much smaller in scope and were contained quickly. The current outbreak shut all tourism sites in Zhangjiajie, a renowned scenic destination in central China. Other cities in the Provinces of Hunan, Shanxi and Jiangsu have also closed tourist sites. Airlines scheduled 9.8% less seat capacity this week in China than last week, the second drop in a row, based on data from OAG scheduling specialists. In 2019, capacity ranks 95.7%, compared to year 2019 levels. It is the first time in five weeks that carriers have served fewer seats in the country than they offered in the same period prior to Pandemics. Qunar.com Inc. said flight and hotel cancellations on July 29 surged to four times the amount seen in normal days, and customer inquiries also added three times the usual amount. '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. The current outbreak weighs on a fragile recovery in retail sales and adds to a number of risks that analysts are already seeing in the second half, including a slowdown in exports and cooling properties and infrastructure investment. The July supply manager survey shows manufacturing coming under pressure in the month. Even though the Caixin services PMI recovered sharply from a 14 month low in June - largely because a previous outbreak in the southern Province of Guangdong was brought under control, the outlook remains dim. The gauges'suggest that economic recovery is not on a certain footing, Wang Zhe said in a statement Wednesday. 'The economy still faces enormous downward pressure. Beijing has been trying to force consumption in the economy to make it less dependent on old growth drivers such as investment and property. That remains a key focus for authorities, with the Chinese Securities Journal News Press declaring in front-page commentary on Wednesday that the country should increase the international market to stabilize growth and counter uncertainties in domestic demand. 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 the provinces of Hebei and Jilin. Retail sales growth in the year will likely fall short of the previous projection of 12%, it stated. Authorities are already on guard for slower growth in coming months and have pledged fiscal and monetary support to cushion the recovery. This year government targeted GDP growth of more than 6%. Traders are boosting their bets for monetary easing, with bond yields and an indicator of future rates at one-year lows simultaneously. Monday's rally in sovereign debt follows seven consecutive weeks of gains, the longest winning streak since the Trade War broke out with the U.S. in 2018. The benchmark 10-year yield has fallen nearly 45 basis points from its February high, boosted by local inflows and a delay in foreign governments bond issuance. Bonds have been boosted by stocks' haven demand triggered by a sell-off in stocks. Production has been spared a nationwide lockdown of the sort 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. The latest outbreak spreads to Beijing despite the capital's stringent measures, with authorities taking steps Tuesday to ban passengers from 23 regions, including Zhengzhou, Nanjing, Yangzhou, Shenyang and Dalian. The Shanghai bureau of the financial industry reported a virus case this week. Many tourist events have been postponed or cancelled, including the China's largest beer festival, Qingdao International Beer Festival, and the Torch Festival in Yunnan province of southern China. More than a dozen Music Festivals in various cities have also been cancelled or delayed, and cinemas were closed in Nanjing, Zhangjiajie and Lianyungang. Cases haven't been found in areas with heavy industrial or export activities so far, which means the impact on production should be limited said Iris Pang, chief economist at ING Bank NV. 'If there are cases in new locations that are major cities of services or manufacturing, then it would affect economic activities, she said.