- Outbreaks of the Covid-19 Delta variant are threatening to slow China’s economic recovery.
- It is also raising concerns about the costs of the country’s strict coronavirus containment strategy.
China is dealing with its most widespread COVID-19 outbreak since the initial cases in 2020, with lockdowns striking a blow to consumption growth just as exports slow and while flooding and chip shortages weigh on industry, reports Gulf News.
Floods earlier in the month plus lockdowns and movement controls that have expanded since mid-July are likely to have hurt holiday travel and spending, and may also have damaged manufacturing.
Eyes on central bank
The central bank will likely give an indication whether the outbreak has caused it to change its monetary policy stance.
Some 700 billion yuan ($108 billion) in one-year loans will mature, and markets are focused on how much of that the People’s Bank of China will replace on Monday or Tuesday, and at what interest rate.
China’s factory production was faced with multiple constraints in July, with shocks from heavy rain and floods, chip shortages, faltering demand, and environmental curbs.
Tough stance on property market
Investment growth remains slow, as the pace of local government infrastructure bond issuance hasn’t picked up and Beijing is continuing with its tough stance on the property market.
“The blow to China’s economy from the delta variant outbreak deepened in the past two weeks, according to high-frequency data. Deterioration on the demand side in late July and growing job concerns seen in early August suggest the setback to growth will be larger than the impact from flare-ups earlier this year – increasing downside risks to our forecast for a 6.8 per cent expansion in the third quarter,” Chang Shu and David Qu of Bloomberg Economics.
Consumption, especially of services, was among the first to feel pain from China’s most widespread outbreak since Covid first appeared in Wuhan. Spending during the summer holidays is set to suffer as authorities rushed to close tourist sites, call off cultural events, and cancel many flights.
The aggressive moves in pursuit of the goal of zero COVID-19 infections will likely prove economically costly, weighing on an already-softening recovery where export growth is slowing, factory-gate prices are rising, and the real estate market is subdued.
Supply chain disruptions
This week, an outbreak at Ningbo-Zhoushan port halted about all inbound and outbound container services at one terminal, stopping about 25 per cent of the capacity of China’s second-largest container port for an uncertain period of time.
If that continues for weeks it will disrupt not only China’s exports and economy, but have a domino effect on imports in other countries. The shutdown follows the closure of Yantian port in Shenzhen for about a month from late May after a small outbreak, which had ripple effects on international shipping.
Monetary policy dilemma
Elsewhere, central bankers in New Zealand are predicted to hike interest rates, while their counterparts in Indonesia, Norway, and Namibia are expected to hold.
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Source: Gulf NewsGulf News
