Global banks are unanimously downgrading China’s growth outlook further, citing the challenges of ongoing zero-Covid restrictions with no signs of a quick reopening. 

Global banks across the board are downgrading their growth forecast for China as a myriad of headwinds – most notably from the challenges of zero-Covid restrictions – further fuel the economic slowdown. 

This is on top of the existing pessimism as most banks originally forecasted China to miss its annual GDP target of 5.5 percent, announced in March, despite this being the lowest growth goal in three decades. 

Too Early for Reopening Bets

In top cities like Shanghai or Beijing, there are signs of an accelerated reopening especially after Chinese premier Li Keqiang summoned about 100,000 officials to a videoconference last week to express concerns about the slowdown and to push for faster resumption.  

But banks are less optimistic that a reopening can happen fast enough to put China’s GDP growth back on track.

«Markets may start trading a China re-opening but that may be too soon,» according to a note issued last week by Citi, which cut its growth forecast from 5.1 percent to 4.2 percent. «Despite the ongoing drag from zero-Covid policies and weak growth numbers, stimulus has been very piecemeal and policymakers seem reluctant to commit to measures.» 

Goldman Sachs lowered its forecast from 4.5 percent to 4 percent, attributing a 1.6 percentage point loss to the pandemic and another 1 percentage point loss to risks linked with China’s real estate market and a commodity price surge. Chinese stimulus is expected to provide a 1.8 percentage point boost.

Monthly Cost

At Standard Chartered, the forecast was cut from 5 percent to 4.1 percent and the British bank projects that every additional month of lockdown will cost China up to 0.6 percentage points of annual GDP growth.

«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,» said a research note by UBS which slashed GDP forecast from 4.2 percent to 3 percent as it does not expect a rapid easing of curbs like 2020 due to the nature of the omicron variant.  

Low Vaccination Rate and Efficacy

Other banks point at vaccination in China – both the rate and efficacy of locally available products – as a key hurdle to forecasting a reopening unless Beijing changes tack to accept achieving immunity in its population. 

«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,» according to a note by J.P. Morgan economists last week which downgraded its full-year China growth forecast from 4.3 percent to 3.7 percent.

According to Morgan Stanley, Beijing will likely stick to zero-Covid policies for most of the year in part due to the low overall vaccination rates for third doses, especially amongst the elderly.

«Policymakers are likely to err on the side of taking up stricter lockdowns if necessary,» it said in a note which cut the 2022 forecast from 5.1 percent to 4.6 percent in March. «This means all-out easing efforts would still be blunted by successive Covid outbreaks and related shutdowns.»

Premier’s Warning

Last week, premier Li – who is also the head of China’s government – spoke candidly during the videoconference to make a rare admission that the country could miss its 5.5 percent annual growth target while urging to place focus on simply achieving positive growth in the second quarter.

He cited a number of pressing issues in addition to the need for accelerated reopening, such as all-time high youth unemployment and food security. 

And it is interesting to note that government statistics may potentially over or understate the actual reality in China.

In 2010, Li was famously quoted as calling China’s GDP figures «man-made» and therefore unreliable, according to U.S. diplomatic cables released by Wikileaks, citing examples of discrepancies between certain figures, such as electricity consumption or rail cargo volume, and reported overall economic growth.