Economists see limited growth boost from China’s quarantine cut

BEIJING (BLOOMBERG) – China’s cut to quarantine times for inbound travelers is boosting sentiment, but the change will likely have a modest impact on the world’s second-largest economy unless more dramatic measures are taken.

That is the view from economists, who are holding firm on their gross domestic product (GDP) growth forecasts for now after China halved its quarantine time to seven days, with a further three days of at-home monitoring. Most of them said that while the revisions signal Beijing is taking a more practical approach to its Covid Zero policy, it is still too early to anticipate an end to that strategy any time soon.

The government’s growth target of around 5.5 per cent for the year also remains a significant challenge, they added.

S&P Global Ratings Asia-Pacific chief economist Louis Kuijs said: “Such measures should improve sentiment. While they are only small steps, they indicate how the government would like the overall Covid-19 policy to evolve.”

However, he said the steps “do not materially change China’s overall Covid-19 stance. Indeed, as long as ‘dynamic zero’ remains the overall guiding principle, new outbreaks pose serious risks to the economy.”

He added, though, that the announcement reduces the downside risks to S&P’s current forecast. The firm projects growth of 3.3 per cent for this year, below the median forecast of 4.1 per cent in a Bloomberg survey of economists.

Mr Ding Shuang, chief economist for Greater China and North Asia at Standard Chartered, said the easing “represents an adjustment of those unnecessary or excessive measures”, adding that it “definitely has a positive impact” on production and consumption.

He added that the rule change “doesn’t just mean a shortening of quarantine time, it signals a relaxation in the overall mentality”.

However, the bank did not revise its prediction of 4.1 per cent growth this year, as that estimate has already taken into consideration a gradual easing in virus curbs.

Morgan Stanley economists led by Robin Xing said: “The first easing in international travel restrictions in more than two years marks a big shift in China’s Covid-19 doctrine, increasing our conviction of an exit from Covid Zero by the turn of the year.”

They forecast a rebound in GDP growth to 2.7 per cent year on year in the third quarter, and 4.7 per cent in the fourth quarter.

“While it’s one small step for Covid-19 relaxation, it’s one big leap for confidence in the direction of the Covid-19 pathway,” they added.

Goldman Sachs economists led by Dr Hui Shan cautioned that the Omicron variant’s transmissibility presents some uncertainty, as “new guideline might also increase the risk of tightened restrictions in the future should there be outbreaks on a larger scale”.

They added that any “material changes” to the Covid Zero policy are unlikely to come before next March. Announcements about visits to foreign countries by top Chinese leaders or whether the nation plans to host in-person global events could help track a potential shift in policy, they said.

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