Prolonged shutdowns in Shanghai have hampered supply chains and prompted banks to cut Chinese GDP forecasts. Here, a truck leaves a port on April 13, 2022, with medical supplies for Shanghai.
Tang Ke | Visual Group China | Getty Images
BEIJING — In just about a week, several investment banks have cut their growth forecasts in China as Covid lockdowns drag on in economic hub Shanghai.
The new median forecast among nine financial firms tracked by CNBC called for Chinese GDP growth of 4.5% for the full year. This is well below the government’s official target for a 5.5% increase.
At the bottom of the forecast was Nomura with a forecast of 3.9%, down from 4.3% previously.
“The strict application [zero-Covid strategy] is causing a big supply shock for the whole economy, especially for cities subject to full and partial shutdowns,” Japanese investment bank chief economist Ting Lu said in a report on Wednesday. .
“This supply shock could further weaken demand for housing, durable goods and capital goods due to lower incomes and growing uncertainty,” he said.
Since March, mainland China has been battling its worst Covid outbreak since early 2020. Shanghai, home to the world’s busiest port, has been one of the hardest hit regions. A two-part citywide lockdown that began about a month ago has dragged on with no clear end in sight.
A major business district in Beijing, the nation’s capital, began three days of mass testing on Monday and closed non-essential businesses in one area to control a spike in cases over the weekend.
UBS: the biggest cut
Among nine financial companies, UBS cut its Chinese GDP growth target the most, down 0.8 percentage points to 4.2% on the basis of “increasing downward pressure on the economy “.
Despite expectations of increased political support, economist Wang Tao said in an April 18 report that his team does not expect Beijing to do “all it takes” to meet the official target. by 5.5% since it was fixed before the last wave of Covid and the Russia-Ukrainian war.
“Nor do we believe that the economic impact of Covid policy alone will soon change the government’s Covid policy change, as minimizing Covid cases and deaths is likely to remain the top priority,” Wang said.
As of Tuesday morning, Shanghai had recorded more than 150 Covid-related deaths.
Bank of America: the second biggest drop
Bank of America Chinese economist Helen Qiao made the second biggest cut, down 0.6 percentage points to 4.8%.
“The closures and restrictions imposed by Covid-19 in Shanghai and neighboring cities are not only hitting local demand, but also causing widespread logistical breakdowns and supply chain disruptions in and out. region,” the bank said in an April 19 report.
“In our view, even if these control measures will eventually be undone and economic activities will gradually normalize by the middle of the year, a heavy toll on growth already seems inevitable,” the report said.
Allianz Trade: frequent cuts
The cut in Allianz Trade’s forecast marked the second cut in just a few months.
On Wednesday, the company lowered its GDP forecast to 4.6% from 4.9%, which was itself a revision from the 5.2% estimate made towards the start of the year. .
The first downgrade came after Russia invaded Ukraine in late February, and the second downgrade assumes Shanghai’s lockdown lasts a month before returning closer to pre-pandemic levels in May, Francoise said. Huang, senior economist at Allianz Trade.
If the lockdown in Shanghai lasts two months and other major cities are affected, she expects China’s GDP to grow only 3.8% this year.
Last week, the International Monetary Fund also lowered its Chinese GDP forecast for the second time this year. The new estimate is 4.4% growth, down from January’s decline to 4.8%, against IMF expectations in October for 5.6% growth in 2022.
JPMorgan, Barclays: Adjustment after GDP data
China announced on April 18 that first-quarter GDP grew 4.8% more than expected, with industrial production and fixed asset investment also beating forecasts. But retail sales contracted 3.5% more than expected.
Later in the day, JPMorgan cut its full-year GDP forecast to 4.6% from 4.9% previously. Most of the deterioration is due to reduced expectations for consumption growth, with export growth unchanged and investment reduced by 0.1 percentage point.
“It should come as no surprise [the] Omicron’s slowdown in economic activity will be greater in April than in March,” said the bank’s economic and policy research team on emerging markets in Asia. They estimated that parts of China accounting for around 25% of national GDP were in full or partial lockdown in early April. .
Also on April 18, Barclays cut its full-year GDP forecast to 4.3%, from 4.5%, on expectations that the Covid disruptions will last for some time.
Morgan Stanley had already lowered its forecast on March 31, to 4.6% against 5.1% previously. Economist Robin Xing and his team said China is unlikely to end its zero-Covid policy until a policy reshuffle expected in the fall.
“This means that sporadic shutdowns across the country over the next two quarters would limit consumption, although production would be protected by closed-loop management systems,” the report said.
Citi, Goldman Sachs: holding on
Not all banks have cut their Chinese GDP forecasts.
On April 18, Citi raised its estimate to 5.1% after China’s GDP beat in the first quarter. At the end of March, the bank had raised its growth forecast to 5% from 4.7% on the basis of better than expected economic data in January and February and expectations of stronger government support.
Goldman Sachs said last week that it maintained its forecast for China’s GDP of 4.5% for the year after the release of first-quarter data.
“We believe the negative impact of Covid could extend into April and even beyond and expect a weak start to the second quarter, despite the stronger than expected first quarter GDP print” , Lisheng Wang and a team said in an April 18 report. They expect further easing measures in the coming months to support growth.
The investment bank had raised its GDP forecast in January to 4.5% after a better-than-expected fourth-quarter GDP report. Earlier that month, Goldman announced a forecast of 4.3%, down from 4.8%, on expectations that consumption would be hit harder as China tries to control the highly transmissible omicron variant.
– CNBC’s Michael Bloom contributed to this report.