Easing Covid restrictions in China could hurt growth in 2023

China’s shift in Covid-19 health policy, promised to spur an economic recovery next year, is likely to dampen growth in coming months due to rising infections, ensuring a recovery only later in the year, economists said.

There are already signs of a return in demand for travel and other services, but China’s fragile health system and low vaccination rates have left the country unprepared for a major wave of infections, which could trigger labor shortages and leave even more nervous consumers.

Some economists have lowered growth forecasts for early next year, continuing this year’s weak growth figures, among the worst in half a century.

And while long-term confidence in the recovery remains unshaken, a reopening of the economy could also trigger inflation, which has so far remained relatively subdued in China despite rising prices in other major economies.

“Compared to other developed countries, medical resources in China are insufficient,” said Nie Wen, an economist at the Hwabao Trust, who lowered his forecast for China’s first-quarter growth to 3.5%-4% from 5%. before.

He cited a particular risk of Covid outbreaks when China celebrates the Lunar New Year holiday in January, a popular travel time in the country.

China’s economy grew just 3% in the first three quarters of this year, but an annual meeting of top officials next week is likely to aim higher: government advisers told Reuters last month they would recommend growth targets for 2023 ranging from 4, 5% to 5.5%, while a central bank adviser said last month that China should set a target of no less than 5%.

This year’s lower growth, although due in part to a slump in the domestic housing market and the global economic slowdown, was also largely attributed to severe Covid-19 restrictions.

Lockdowns and quarantines disrupted supply chains and reduced consumer spending, and ultimately triggered widespread protests that spurred the recent health policy change.

With China expected to face waves of Covid-19 infections following the easing, the benefits of reopening are likely to arrive with a significant delay.

“Given the accelerated reopening schedule, we believe growth could remain below average in the near term,” Morgan Stanley said after the latest easing measures were announced.

Bank analysts expect growth to improve modestly but remain below average, with “a more significant recovery” in the second half of the year and 5% growth for the full year.

Economists and analysts are confident that, overall, the reopening has been more positive for growth.

Source: CNN Brasil

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