ADB cuts China’s growth forecast on concerns over Covid lockdowns

The Asian Development Bank has cut its growth forecast for China due to concerns over the country’s zero-Covid approach and strict lockdowns, which put even more pressure on the real estate sector.

Gross domestic product growth for the world’s second largest economy is expected to be at 4% in 2022, down from an earlier estimate of 5%, ADB said in a report published Thursday.

China’s continued “adherence to a zero-covid strategy in response to renewed outbreaks early in 2022 has triggered the reimposition of strict lockdowns,” the bank said in its report.

“With many economies in the region increasingly choosing to live with the virus and reopening, economic activity continued to expand in the first half of 2022 — with the notable exception” of China, the bank added.

In addition to lockdown-induced weakness in household consumption, a further burden on China’s economy “is that the housing market has not stabilized,” ADB said in the report. 

Household demand has been hit by recent Covid-19 outbreaks, which has placed further stress on the property market, it noted. 

“Average new home prices in 70 major cities fell by 0.8% year on year in May 2022, despite a reduction in the mortgage-rate floor for first-home buyers and a cut of 15 bps in the 5-year loan prime rate in May,” the report said.

On Friday, China reported GDP growth of just 0.4% in the second quarter from a year ago, missing expectations as the economy struggled to shake off the impact of Covid controls.

The statistics bureau described the latest economic results as “hard-earned achievements” but warned about the “lingering” impact of Covid and “shrinking demand” at home.

In the second quarter of 2022, China faced its worst Covid outbreak since the height of the pandemic in early 2020. 

While the central government has taken steps to cut the quarantine period and eased some Covid prevention measures in Beijing and Shanghai, the situation is still volatile and closely watched.

Different parts of China have had to reinstate Covid restrictions due to a spike in new cases.

President Xi Jinping pledged last month to use “more forceful” measures to achieve the country’s economic targets for the year.

But Beijing’s strict Covid strategy has caused analysts to cut their forecasts for annual growth to levels far below the official goal of around 5.5%.

In a recent report, financial services group Macquarie pointed out that China only grew 2.5% year-on-year in the first half of this year. That means GDP growth has to “accelerate to over 7% in second half of 2022 to deliver an annual growth of 5% for the whole year this year,” it said.

“It is impossible without a significant escalation of policy stimulus from the current level,” the company said.

To mitigate the economic damage from the Covid lockdowns, China still needs more stimulus to see a meaningful recovery for this year, according to investment bank Morgan Stanley.

The Wall Street bank expects GDP growth…