Goldman cuts China’s GDP for 2022 amid lockdowns, omicron

Traffic police and epidemic prevention personnel work together to check vehicles at a highway entrance in Zhengzhou, capital of Henan Province, China, on the afternoon of Jan. 8, 2022.

Cost photo | Edition of the future | Getty Images

BEIJING — Goldman Sachs cut its 2022 economic growth forecast for China on Tuesday pending increased restrictions on business activity aimed at containing the omicron variant Covid.

In recent days, China has reported pockets of omicron cases in Tianjin city and Anyang, Henan province, which have prompted at least partial shutdowns. Xi’an, a major city in central China, has been on lockdown since late December to control a Covid outbreak that authorities say is unrelated to omicron.

“In light of the latest Covid developments – in particular, the likely higher average level of restriction (and therefore economic cost) to contain the more infectious Omicron variant – we are revising our 2022 growth forecast down to 4, 3%, down from 4.8% previously,” Goldman Sachs analysts Hui Shan and a team wrote in a report late Tuesday.

Consumption will likely be the most affected, while exports will be less affected, analysts said, as they assume limited disruptions to supply chains. They expect the easing of government policy to offset half of the drag from Covid restrictions, and assume the negative impact will be concentrated in the first quarter.

China’s economy contracted in the first quarter of 2020 as more than half of the country shut down during the country’s first coronavirus outbreak. But the temporary closures have overlapped with the Lunar New Year holiday, when businesses can be closed for a month.

In the second quarter of 2020, the virus was under national control and the economy returned to growth.

Nearly two years later, local authorities are increasing travel restrictions and other measures despite a low number of cases – compared to the initial outbreak and a smaller one in the summer of 2021, Goldman analysts said .

“Containing the domestic Covid situation remains the top priority for local officials,” the report said.

Maintaining stability is key, China’s top leaders stressed at an annual economic planning meeting in December.

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Many analysts expect China to maintain its zero-tolerance policy to control the pandemic until at least the fall. That’s when the ruling Chinese Communist Party is due to hold a meeting that is expected to give President Xi Jinping an unprecedented third term.

More immediately, just before the Beijing Winter Olympics kick off on February 4, authorities are focused on ensuring that the Lunar New Year does not contribute to new outbreaks. The holiday travel season is expected to run from Jan. 17 to Feb. 25, Goldman analysts pointed out.

Below Beijing’s GDP target?

Chinese authorities are widely expected to announce a growth forecast of at least 5% for 2022 at an annual meeting in March.

That’s above Goldman’s revised GDP forecast of 4.3%, analysts pointed out.

The streets of Tianjin, China empty on January 10, 2022, as the city enters a partial lockdown following a spike in omicron cases.

Geno Hou | Edition of the future | Getty Images

To reconcile this potential gap between real growth and the GDP target, analysts at the bank said Beijing could roll out more stimulus or abandon the growth target, as was the case in 2020.

They also noted previous instances where weakness in some measures of growth did not prevent the official GDP figure from meeting the government’s target.

The accuracy of China’s official economic data is frequently questioned.

“Finally, of course, it could turn out that we are overestimating the growth impact of Omicron and Covid more generally, given the public health system’s accumulated experience with the virus and ongoing improvements in diets. border quarantines and domestic virus checks,” Goldman analysts said. .

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