China sees risk of GDP downgrade as Delta curbs spending, travel

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Latest virus controls during what is the nation's peak summer holiday will curb retail spending and economic growth.
China's broadest Covid-19 outbreak since the beginning of the pandemic in late 2019 is hampering tourism and spending during the peak summer holiday, prompting analysts to review their economic growth projections as risks escalate.

Authorities rushed to close tourist sites, call off cultural events and cancel flights, as the outbreak linked to the highly-infectious delta variant spread to nearly half of China's 32 provinces within just two weeks. At least 46 cities have advised residents to refrain from traveling unless it's absolutely necessary.

Alongside recent flood damage in parts of the country, the latest virus controls will likely curb retail spending and economic growth in the second half of the year.

Nomura Holdings Inc. lowered its projection for third-quarter growth to 5.1% from 6.4% previously and sees 4.4% expansion in the final three months of the year, down from 5.3%. For the full year, Nomura cut its GDP growth forecast to 8.2% from 8.9%.

"The draconian measures taken by the government are resulting in potentially the most stringent travel bans and lockdowns in China since the spring of 2020," said Lu Ting, Nomura's chief economist for China. "Recent rainstorms and flooding — both worse than expected — also necessitate a downward adjustment to our GDP growth forecasts for the third quarter."

Policy Support

Goldman Sachs Group Inc. said the potential impact on third-quarter growth could be 0.7 percentage points, although it…
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