China’s abrupt ending of its Covid Zero restrictions have forced economists to make sharp revisions to their growth projections for this year and next.
UBS Group AG and Australia & New Zealand Banking Group Ltd. were the latest to adjust forecasts on Friday, cutting estimates for this year to 2.7 percent as Covid infections spread rapidly.
Predictions for next year were raised sharply to close to 5 percent or higher, on the expectation that consumer and business activity will recover as Covid infections subside.
Latest economic data show China’s economy weakened more than expected in November before the government abruptly dropped its “Covid Zero” policy. A rebound in economic activity since the shift is proving to be short-lived, as infections spread in major cities and residents choose to avoid going out.
UBS now sees gross domestic product growing 2.7 percent this year, down from 3.1 percent previously. Growth will likely rebound to 4.9 percent in 2023, up from a previous projection of 4.5 percent, UBS economists led by Wang Tao wrote in a note Friday. ANZ cut its prediction for this year to 2.7 percent from 3 percent, having already raised next year’s estimate to 5.4 percent in November.
“People may be very cautious in their offline activities and voluntarily reduce their outings and gatherings,” UBS economists said. “We expect economic activities to gradually recover from early 2023 as the first big wave of Covid infection passes.”
Other major banks like Goldman Sachs Group Inc. have also adjusted their growth expectations for this year and next given China’s abrupt shift in Covid policy. The consensus estimate in a Bloomberg survey is for the economy to expand 4.8 percent next year from 3.2 percent this year.
China’s top leaders are expected to conclude an annual economic policy meeting soon, which will offer clues on the government’s stance on growth and stimulus next year. Senior officials are debating a GDP growth target for next year of around 5 percent, according to people familiar with the discussions.