· Lack of an exit strategy will hinder confidence, demand: UBS
JP Morgan says China stuck between Covid Zero and omicron
By
May 24,
2022, 1:30 AM UTC
UBS 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 tougher uphill battle
for the world’s second-largest economy.
UBS on
Tuesday cut its year-on-year gross domestic product growth forecast to 3% from
4.2%, citing the impact of Covid Zero. While the economy will likely rebound in
the third and fourth quarters as the government refines its restrictions and
reduces disruptions to transport and supply chains, that easing likely won’t be
as rapid as it was in 2020 given the nature of the omicron variant, the UBS
economists wrote.
“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,” UBS economists including Tao Wang wrote in a
research note.
Read More: Economists
Cut China Growth Forecasts as Lockdowns Hit Economy
They also
cited the extent to which Covid curbs hurt the economy in April, adding that
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 prior, they said,
adding that they expect GDP in the quarter to contract by an annualized 8% from
the prior quarter.
Earlier,
JPMorgan downgraded its full-year China growth forecast to 3.7% from 4.3%, also
assuming a deep contraction in the second quarter because of the Covid
restrictions.
“Given
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,” economists
including Haibin Zhu wrote in a Monday report to clients. They added that China
will likely “continue to face a dilemma” of choosing between Covid Zero and the
spread of omicron.
Economists are continuing to
cut their forecasts for China’s economic growth after the worse-than-expected data
for April, and as the country signals that its tough anti-Covid curbs aren’t
going away.
Last week, Standard
Chartered Plc, Bloomberg Economics, Goldman Sachs Group Inc. and Citigroup
Inc. all
downgraded their estimates
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