What is a hard landing in China? Pick a number. Not long ago, 4% would have easily qualified. Goldman Sachs with the downgrade:
The zero-Covid policy has been a pillar of China’s efforts to contain the coronavirus and keep domestic economic activity largely normal after the initial early-2020 national lockdown. We noted last week that the more transmissible Omicron variant increased the risk that more frequent and/or broader restrictions would be needed to sustain this strategy. Since then, local Omicron transmission has been confirmed in both Tianjin city and Henan province, and in response local governments have escalated their Covid-related restriction measures.
In light of the latest Covid developments — in particular, the likely higher average level of restriction (and thus economic cost) to contain the more infectious Omicron variant — we are revising down our 2022 growth forecast to 4.3%, from 4.8% previously. The new forecast incorporates an additional 0.9pp drag from Covid-related restrictions, in line with the risk scenario that we estimated last week. We expect approximately half of this drag to be offset by further policy easing. We assume the negative impact is mostly concentrated in Q1 (0.5% qoq ann vs. 5.5% previously). At present, we expect a rebound in Q2 (8.0% qoq ann vs. 5.0% previously), assuming outbreaks can be brought under control more quickly after the winter months and after booster vaccinations are more widely deployed.
