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More economists slash their forecast of China’s economic outlook as the Delta variant spreads across the world’s second biggest economy, leading to tightened containment measures and raising worries of a further slowdown in consumer spending.
“The current wave of outbreaks has significantly increased the downward pressure on the economy,” Liang Zhonghua, chief macro analyst at Haitong Securities, said in a note on Sunday.
Analysts from ANZ Research said in a note on Tuesday they were likely to revise down this year’s GDP growth forecast from 8.8 per cent if strict control measures continued into September.
A severe Delta outbreak and long-lasting lockdowns like those seen at the beginning of 2020 could subtract 12 per cent from the level of the country’s GDP in the third quarter, or 3 per cent from annual GDP output, Standard Chartered economists said in a note on Monday.
The economists’ comments came after Goldman Sachs on Sunday cut its forecast of China’s quarterly growth for the third quarter this year to 2.3 per cent from 5.8 per cent, and trimmed its full-year forecast to 8.3 per cent from 8.6 per cent.
JPMorgan reduced its quarter-on-quarter growth estimate for the third three months of the year to 2 per cent from 4.3 per cent, and trimmed its full-year forecast to 8.9 per cent from 9.1 per cent.
“Recent developments point at further downside risks to already soft third-quarter growth forecasts, related to the spread of the Delta variant, a series of regulatory changes in new economy sectors, and erosion of market confidence,” JPMorgan’s analysts said.
“A new round of Covid-19 outbreak caused by the Delta variant since mid-July is posing the biggest challenge in more than a year to the Chinese government,” Bank of America Securities said in a note last Friday.
“While short-and-sharp lockdowns worked well for China at the outset of the pandemic, the higher transmissibility of the Delta variant means that [parts of] China could get stuck in more persistent lockdowns than last year. The impact on Chinese demand could thus be heavier than last year,” Deutsche Bank said in a note earlier this week.
The cost of China’s zero-tolerance strategy was further isolation and blows to the tourism and dining sectors, said Zhang Zhiwei, chief economist at Pinpoint Asset Management, in a note on Sunday.
Both JPMorgan and Morgan Stanley predicted Chinese authorities would respond with support measures.
On the monetary policy front, JPMorgan said the People’s Bank of China’s main policy rates were likely to be trimmed by 5 basis points in the fourth quarter, while it would deliver two more 50 basis point cuts to banks’ reserve requirements (RRR), the first in October and another in January.
Morgan Stanley said it expected one 50 bps RRR cut before the end of the year and that government bond issuance could accelerate in coming months to support infrastructure investment.
“A mild deceleration in exports in 2H and an ongoing slowdown in domestic demand amid Delta resurgence mean policy support could ramp up in coming months,” the bank said.
After a cluster emerged at an airport in Nanjing on July 20, the Delta strain has spread to more than a dozen provinces. Mainland China recorded 181 new Covid-19 infections on Monday, including the highest daily totals of local and symptomatic cases during its recent outbreak.
All 31 Chinese provincial-level authorities have issued travel warnings, and much of the country have reimposed restrictions on entertainment activities and large-scale gatherings
The 2021 Beijing Cyber Security Conference, which was set to run this week and expected to attract more than 50,000 visitors, was called off after municipal health authorities in the capital ordered the postponement of all large-scale exhibitions this month. The third annual World 5G Conference in Beijing was also canceled. Shanghai has been forced to cancel two key aviation exhibitions this month and next.
So far, 34 large exhibitions across the country have been postponed since August 5, according to the industry portal CNENA.COM.