The Nomura report estimated that more than 30 per cent of the country’s GDP will be under lockdown within the next couple of weeks, while sequential economic growth in the fourth quarter will plummet into negative territory as a result.
Surging Covid-19 cases and the government’s unwavering commitment to its zero-Covid strategy have dashed hopes of a fast reopening.
“As local officials step up mass testing and implement frequent partial lockdowns to stamp out the virus, there has been a broad-based deterioration in mobility and business indicators so far in [the fourth quarter],” Nomura said.
“The contraction in most indicators was even worse than in [the second quarter], when Shanghai and a couple of other cities were under blanket citywide lockdowns.”
Earlier this month, Beijing released 20 measures to boost market confidence, including easing rules on inbound travel, while urging local authorities to restrain the use of lockdowns.
Subsequent announcements to help cross-provincial travel, as well as concerts and entertainment activities, also elevated the mood in the country.
But some say the road to reopening appears to have been taken a step backwards.
“‘20 Measures’ is the inflection point of the zero-Covid policy, for sure, but ‘two steps forward and one step back’ will be the new norm in the months ahead,” Macquarie economists Larry Hu and Zhang Yuxiao said in a report published on Tuesday.
“China might have already passed the point of no return, as it’s unlikely to achieve zero-Covid again without another Shanghai-style hard lockdown.
“What policymakers could do now is to slow the spread of the virus – i.e. flatten the curve – by tightening the Covid controls for the time being.”
The Macquarie economists said that while they expect the economic impact to be less severe than what resulted from the national outbreaks in April and May, the toll will still be heavy. Domestic flights, subway trips, box office receipts and floor space sold are all showing declines.
One of the biggest challenges in the relaxation of the zero-Covid policy is the narrative, as authorities have invested significant political capital in the campaign, the economists said.
Also this week, the International Monetary Fund called for a “recalibration” of China’s zero-Covid strategy to bring the world’s second-largest economy back on track.
