Doha: QNB highlighted Saturday in its weekly commentary that China's Zero-COVID policy has weakened the economy. It noted that the policy was highly effective at suppressing the initial wave of the pandemic, but highlighted that it is also a headwind to the country's GDP growth.
The bank maintained that while the country can introduce some policies to support the economy, these policies haven't managed to drive growth yet.
The report predicted that the combination of headwinds from the Zero-COVID policy and relatively ineffective policy stimulus will lead to a weak economic recovery in China.
"We expect these two factors to lead to Chinese GDP growth of only 4.8% in 2022 and 5.3% in 2023, well below its pre-pandemic trend," the report said.
The report pointed out that new infections continue to appear in China despite the Zero-COVID policy because Omicron is highly contagious and can exceed the protection provided by vaccines. As a result, officials are engaged in "continuous monitoring" of new cases, tracking outbreaks by conducting tests and tracing contacts, and then imposing isolation through intensive local lockdowns. The implementation of this approach involves the establishment of tens of thousands of screening kiosks across China's cities and economic centers, which is particularly evident in China's two largest cities, Shanghai and Beijing, and also in Shenzhen, China's technology hub.
The report said that the investment in testing underscores China's commitment to the Zero-COVID policy, an approach that has made China the only country in the world to contain the highly infectious Omicron variant. The investment in testing was estimated by Goldman Sachs to have cost the country $30 billion.
The report stressed that the Chinese authorities are under great pressure to control the pandemic and push the economic recovery ahead of the ruling Communist Party congress in the second half of the year. In fact, the report, with the reassurance of Chinese Vice Premier Liu He, reminded the public in a recent speech that the government would not allow a "hard landing" in the economy, announcing measures that would support the struggling real estate sector, but also help ending the tightening cycle that has led to uncertainty and losses in the Chinese equity markets.
