(Bloomberg) -- China’s Covid Zero strategy will make it harder for Beijing to hit its gross domestic product growth target of about 5.5% for 2022, as the costs of the policy rise and its benefits wane, according to Nomura Holdings Inc.
As authorities prioritize control of the virus, “they cannot afford to spend as much time and energy on economic growth,” Nomura Holdings Inc. economists including Lu Ting wrote in a note Friday. The economists added that massive fiscal spending on fighting the virus could reduce government investment in other, “more productive” areas.
China’s daily Covid-19 caseload exceeded 1,000 on Friday for the first time in two years, as the highly infectious omicron variant spawns an outbreak at a scale not seen since the peak of the start of the pandemic in Wuhan.
Repeated lockdowns and travel bans are also taking a toll on ordinary people who are “feeling the pinch,” the economists said, noting concerns about unemployment and instances in which people have been forced to tap into their savings, thus reducing spending.
Even so, they wrote, a recent spike in case numbers and the need to “avoid making policy mistakes” as the country prepares for a high profile leadership change mean the likelihood of ending the strict policy before March 2023 has “diminished.” President Xi Jinping is expected to extend his term as leader at the Communist Party’s congress later this year.
Abandoning Covid Zero now “could be perceived as conceding that the strategy did not work in the first place,” the economists wrote.
Their views are echoed by Bloomberg Economics, which argues that the country’s recent restrictions will hurt consumption, even if a blanket lockdown is unlikely. As of March 9, 14 provinces had high or medium-risk regions, accounting for 54.4% of national GDP, wrote David Qu, an economist at Bloomberg Economics, in a note.
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