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Since the beginning of the pandemic at the end of 2019, the most widespread Covid-19 outbreak in China is hampering tourism and consumption during the peak summer vacation, prompting analysts to re-examine their economic growth forecasts as risks escalate.
The authorities are eager to close tourist attractions, cancel cultural events and cancel flights, because the epidemic related to the highly infectious delta mutation has spread to nearly half of China’s 32 provinces in just two weeks. At least 46 cities advise residents not to travel unless absolutely necessary.
In addition to the recent flood damage in parts of the country, the latest virus control measures may curb retail spending and economic growth in the second half of this year.
Nomura Holdings lowered its third-quarter growth forecast to 5.1% from the previous 6.4%, and expects the growth rate in the last three months of this year to be 4.4%, which is lower than 5.3%. Nomura lowered its GDP growth forecast for the whole year from 8.9% to 8.2%.
“The severe measures taken by the government may cause China to implement the strictest travel ban and blockade since the spring of 2020,” said Lu Ting, chief economist of Nomura China. “The recent heavy rains and floods-both worse than expected-have also forced us to lower our GDP growth forecast for the third quarter.”
Policy Support
Goldman Sachs Group stated that the potential impact on economic growth in the third quarter may be 0.7 percentage points, but it did not lower its 6.2% growth forecast for this quarter, saying that there is uncertainty about the duration of the epidemic and policy support may increase. Bloomberg Economics And Natwest Group Plc. Also saw the downside risks of their growth forecasts.
Although China faced sporadic virus outbreaks in the past year, their scope was much smaller and they were quickly brought under control. The current epidemic has closed all tourist attractions in Zhangjiajie, a famous scenic spot in central China. Other cities in Hunan, Jiangsu and Shanxi Province have also closed tourist attractions.
According to data from dispatch expert OAG, airlines’ seat capacity in China this week decreased by 9.8% compared with last week, the second consecutive decline. The production capacity is currently 95.7% of the 2019 level. This is the first time in five weeks that the number of seats provided by airlines in the country is lower than in the comparable pre-pandemic period.
The current epidemic has put pressure on the fragile recovery of retail sales and increased the resistance to economic growth in the second half of the year. Analysts expect exports may slow down, and real estate and infrastructure investment may cool.
Bruce Pang, head of macro and strategic research, said: “The growth of residents’ wages has lagged. If you can’t spend money because of the epidemic, it will definitely drag down consumption in the second half of the year.” At Huaxing Securities Hong Kong.
Bloomberg Economic Research estimates that retail sales in July and August may shrink by about 0.2% month-on-month, similar to the impact of the outbreak in Hebei and Jilin provinces at the beginning of the year. It said that for the full year, retail sales growth may be lower than the 12% previously predicted.
The authorities have been wary of slowing growth in the coming months and have pledged to provide fiscal and monetary support to cushion the recovery. The government’s goal is to increase GDP by more than 6% this year.
The Qingdao International Beer Festival, the largest beer festival in China, was cancelled ahead of schedule, and the Torch Festival, a local tourist event, was cancelled in Yunnan Province in southern China. Music festivals in more than a dozen cities have been cancelled or postponed, and movie theaters in Nanjing, Zhangjiajie and Lianyungang have been closed.
Despite strict measures taken by the capital, the latest epidemic has spread to Beijing, and the authorities took measures on Tuesday to ban railway passengers from 23 regions including Zhengzhou, Nanjing, Yangzhou, Shenyang and Dalian. The Shanghai Financial Center also reported a case of the virus this week.
Iris Pang, chief economist of ING Bank NV Greater China, said that so far, no cases have been detected in areas with heavy industry or export activities, which means that the impact on production should be limited.
“If a case occurs in a new location in a major city in the service industry or manufacturing industry, then it will affect economic activity,” she said.
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