Fitch cuts growth forecast for China

Fitch Ratings has cut its growth forecast for China after Beijing’s policy of zero-Covid started to weigh on the country’s economy.

The ratings agency now expects GDP growth of 4.3% in 2022, down from its previous forecast of 4.8%, although it revised upwards its 2023 estimate, to 5.2% from 5.1%, on the assumption that the policy will be gradually phased out.

While most of the world shifts to living with Covid, China has maintained a zero tolerance approach. The policy, which includes mass testing and stringent lockdown conditions, has confined people to their homes and shuttered factories. Much of Shanghai, a vast manufacturing hub and China’s busiest port, has been under lockdown since the end of March.

Fitch said retail sales, industrial production and fixed-asset investment had all slowed in March, as domestic supply chains were disrupted and labour availability curtailed.

It continued: "Recent mobility trends suggest that China’s growth momentum deteriorated significantly in April, with traffic congestion, subway passenger volume and other high-frequency indicators at their weakest since the initial outbreak of the pandemic in early 2020."

Fitch expects the disruption to ease in May, however, as infections fall, although it acknowledged that downside risks included fresh containment measures should new outbreaks not be brought quickly under control.