Chinese economy braces for more turmoil amid Covid wave

Bloomberg

China’s economic activity weakened in November before the government abruptly dropped its Covid Zero policy, with a surge in infections in coming months likely to cause more turmoil and push policymakers to increase stimulus.
Key data showed business and consumer activity slumped to their weakest levels since the Shanghai lockdown in the spring. Retail sales and home sales declined, while industrial output and investment slowed sharply. Unemployment rose, notably for the country’s most vulnerable workers.
The government’s abrupt abandonment of its long-held Covid Zero strategy has made the outlook for the economy very uncertain as factories brace for disruption and labour shortages rise. High frequency data are already suggesting a further slowdown in activity in Beijing and other places this month as infections spread widely.
“The November data were way below consensus, pointing to a worsening slowdown” which will continue this month, Lu Ting, chief China economist at Nomura Holdings Inc. wrote in a note. “Surging Covid infections will offset some of the positive impact of the easing in the near term,” he wrote, adding that “the road to a full reopening may still be painful and bumpy.”
The scrapping of many of the Covid rules will allow residents to move about freely and for shops, factories and restaurants to remain open without fear of snap lockdowns. However, with the virus likely to sweep through a country largely unprepared for the mass illness and deaths that could occur, fear of infection will probably keep people confined to their homes and weigh on economic activity.
The data suggests gross domestic product growth may be weaker in the fourth quarter than economists initially projected and will likely remain subdued into next year.
Some economists have lifted their growth forecasts for next year on the expectation that China’s reopening boosts spending by consumers and businesses in the second half of the year and the government likely adds more stimulus.
Growth is forecast to rebound to 4.8% next year, according
to economists surveyed by Bloomberg.