- “If China continues to stick to its zero-Covid strategy, I think domestic demand will be under pressure,” said Hao Zhou, senior emerging markets economist at Commerzbank.
- Many countries in Asia initially took an aggressive approach and tried to eliminate Covid within their borders.
- Real estate and related industries account for about a quarter of China’s GDP, according to Moody’s estimates.
- The economy only grew 4.9% in the third quarter, missing expectations for a 5.2% expansion, according to a Reuters poll of analysts.
China’s economic slowdown will worsen as the Asian giant forges on with its zero-Covid strategy, an economist warned on Monday as reported by CNBC.
Domestic demand under pressure
“I believe domestic demand would be under pressure if China sticks to its zero-Covid plan,” said Hao Zhou, a senior developing markets economist at Commerzbank.
“However, we know that there is no indication that China will lighten or modify this stance very soon.”
So, I think fundamentally the economic activity in China will continue to slow down in the next few quarters,” he said on CNBC’s “Squawk Box Asia” on Monday.
Many Asian governments adopted a strong stance at first, attempting to eradicate Covid within their borders.
However, as the highly infectious delta form spreads and lockdowns become less efficient in controlling it, they have gradually abandoned that policy.
The zero-Covid plan usually entails rigorous lockdowns — even if only one or a few cases have been detected — intensive testing, tightly restricted or closed borders, as well as robust contact tracing systems and quarantine laws.
Energy crisis
In contrast to several of its neighbours, China has stuck to its guns.
Visitors to Shanghai Disneyland were required to take Covid tests in order to exit on Halloween night.
China’s slowdown is exacerbated by the real estate and oil crises. As a result of a massive energy crisis, China’s economic development has slowed, driving down industrial activity.
According to Moody’s, real estate and associated industries account for nearly a quarter of China’s GDP.
According to a Reuters poll of analysts, the economy increased at 4.9% in the third quarter, falling short of predictions of 5.2% growth.
Banks lower their GDP
CNBC has identified ten big banks that have lowered their full-year GDP predictions for China.
“With the economy slowing as sharply as it is, I believe the reality is that [the government] will put in place some targeted measures — which could include monetary policy measures — that try to target lending towards parts of the economy that are more innovative, that are seen as more productive,” said Eswar Prasad, a professor of trade policy at Cornell University.
He told CNBC’s “Street Signs Asia” on Monday that Beijing now faces a variety of “extremely challenging difficulties” in terms of balancing acts.
“How do you get the economy to be less reliant on the industrial sector while yet attempting to maintain a reasonable level of growth?”
China has also cracked down on its internet behemoths this year, with regulators focusing on unfair competition, data protection, and other issues.
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Source: CNBC
