Goldman Lowers China 2022 Growth Forecast to 4.3% on Omicron

  • New forecast, down from 4.8% before, is below Bloomberg median
  • Morgan Stanley also sees risk to growth forecast for 1Q

Goldman Sachs Group Inc. cut its forecast for China’s economic growth this year to 4.3% due to the increased difficulty of containing the more-contagious omicron coronavirus variant.

The downgrade from the bank’s previous projection of 4.8% incorporates a 0.9 percentage point drag from Covid-related restrictions, which will be partly offset by monetary and fiscal easing, economists including Goldman’s chief China economist Hui Shan said in a note.

The negative impact from infections and restrictions as China pursues a policy of virus elimination will mostly be felt in the first quarter of 2022, the economists said. They see a rebound in the following three months, assuming that outbreaks can be controlled more easily after the winter months and as booster vaccinations are more widely deployed.

China confirmed its first locally transmitted cases of omicron in the last week, leading to tightened travel restrictions and business closures in areas where the cases have been found.

Goldman’s forecast is below the median projection of 5.2% growth for the world’s second largest economy seen in a Bloomberg survey of economists. Several expect Beijing to set a growth target floor of 5% for this year.

Lower Target

A 5% target would be below pre-pandemic growth rates

The economy probably expanded more than 8% last year, China Securities Journal reported Wednesday, citing Zhang Liqun, a researcher at the Development Research Center of the State Council. Official gross domestic product data is expected to be released on Jan. 17.

Goldman maintained its call for a 50-basis-point cut in the reserve requirement ratio in the first quarter. It now sees a 10 basis-point reduction in the interest rate on policy loans such as the medium term lending facility, and lenders’ one-year loan prime rate in the first half of the year.

Separately, Morgan Stanley also flagged risks to its growth forecasts if omicron spreads further in the country and triggers the shutdown of more cities. The investment bank expects 60-70 basis points downside to its year-on-year growth forecast of 4.9% for the Chinese economy in the first quarter, analysts including Robin Xing wrote in a Sunday note.

A partial lockdown was imposed in Tianjin, a northern port city that neighbors Beijing, after it reported the country’s first community-spread omicron cases. Anyang, a city of 5 million people in central China, was also locked down after the virus variant was detected.

Author: Tom Hancock, Bloomberg

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