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.

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.

Source:
courtesy of BLOOMBERG

by Jill Elaine Disis

If you have any stories or news that you would like to share with the global online community, please feel free to share it with us by contacting us directly at [email protected]