Bloomberg Group AG and JPMorgan Chase Co. downgraded their forecasts for China's economic growth this year after activity in April was crushed by Covid-related restrictions, creating an even harder battle for the world's second largest economy.
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The impact of Covid Zero was cited by UBS on Tuesday as it cut its year-on-year gross domestic product growth forecast to 3% from 4.2%. The economy is likely to rebound in the third and fourth quarters as the government refines its restrictions and reduces disruptions to transport and supply chains, but easing won't be as rapid as it was in 2020 given the nature of the omicron variant, according to the UBS economists.
The lingering restrictions and lack of clarity on an exit strategy from the current Covid policy will likely dampen corporate and consumer confidence and hinder the release of pent-up demand, according to the research note by UBS economists including Tao Wang.
In April, the extent to which Covid curbs hurt the economy, they said, and progress toward improving transport and logistics has been slow. Growth in the April-to-June quarter is expected to slow to 1.4% from a year ago, they said, adding that they expect GDP to contract by an annualized 8% from the prior quarter.
JPMorgan downgraded its full-year China growth forecast to 3.7% from 4.3% earlier in the day, assuming a deep contraction in the second quarter because of the Covid restrictions.
Because of the high transmission rate of omicron and low efficacy of vaccines in reducing infections, China will need to continue high-pressure restrictions unless it tolerates herd immunity or introduces more effective vaccines, according to economists. Haibin Zhu wrote in a Monday report to clients. They said that China will likely have to face a dilemma between Covid Zero and the spread of omicron.
Economists are cutting their forecasts for China's economic growth after the worst-than-expected data for April and as the country signals that its tough anti-Covid curbs aren't going away.
Standard Chartered Plc, Bloomberg Economics, Goldman Sachs Group Inc., and Citigroup Inc. all downgraded their estimates last week.
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