Two investment banks make their China GDP forecasts even lower

Two investment banks make their China GDP forecasts even lower

May 27, 2022: -Two investment banks have cut their China GDP forecasts much lower this week for a third time in 2022 based on the toll of persistent Covid controls.

Both estimates are beneath 4%, well below the official target of almost 5.5% growth for 2022.

UBS cut its forecast to almost 3%, from 4.2% and the lowest among estimates tracked by CNBC. JPMorgan is cutting its forecast to 3.7% growth, from 4.3%.

“The easing of Covid restrictions will be rapidly in 2020 given the nature of Omicron,” UBS economist Tao Wang’s team wrote in a report on Tuesday.

“The lingering restrictions and lack of clarity on an exit strategy from the present Covid policy will dampen corporate and consumer confidence and hinder the release of pent-up demand,” the report said.

China was the major economy to increase in 2020, with a revised GDP print of 2.2%, as the country could quickly begin the production while the many countries remained under lockdown.

Although, the Covid outbreak stems from the more transmissible omicron variant. Almost all the countries have shifted to a “living with Covid” plan. Beijing is maintaining a far more stringent “dynamic zero-Covid policy,” which cited the risk of overwhelming its public health care system and lower vaccination rates among the elderly of the country.

JPMorgan’s Cheif Zhu evaluates the cost for regular Covid testing will be 40 billion to 50 billion yuan or 0.4% to 0.5% of GDP a year at a minimum.

“Uncertainties related to economic forecasts are high,” the chief Haibin Zhu and a team of JPMorgan wrote in a report on Monday.

“Implementation of zero-COVID policy remains the biggest uncertainty, including the risk of disruption of economic activity and the risk of recurring Omicron wave,” the analysts said, which added the government is presenting more policy stimulus in the coming few months.

Economists are worried about the quality of China’s growth, given increased stimulus and spending on Covid testing.

“This does not include public health expenses, community services during lockdowns, and construction of test stations and quarantine centers,” the report said that workers also need to take time out of their day to wait in lines to test for the virus.

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Two investment banks make their China GDP forecasts even lower