Fitch Ratings Corporation has cut China's GDP growth forecast to 4.3%

China's GDP growth forecast for 2022 downgraded

photo_camera REUTERS/REINHARD KRAUSE - Fitch Ratings Corporation has cut China's GDP growth forecast to 4.3%.

The latest data from Fitch has predicted a downgrade in China's GDP growth forecast for 2022 to 4.3% from the 4.8% previously predicted. The 5% decline is attributed by the company to pandemic-related disruptions and the impact on the country's economy in the first two quarters of the year.

Following this trend, the rating agency has stated that a contraction in GDP is still expected in the second quarter, before the economy begins to recover. Nevertheless, Fitch has revised its growth forecast for 2023 slightly upwards to 5.2%, a 0.1% improvement on its previous estimates

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Fitch's forecast for 2022 released on Tuesday is in line with first-quarter data on the Chinese economy, which showed GDP growth of 4.8%. The numbers came in above analysts' expectations of around 4.4%. However, retail sales did not grow in the same way, which experienced a year-on-year fall of 3.5% since mid-2020. Also, compared to the last quarter of 2021, Chinese GDP rose by 1.3%.

In any case, Fitch's forecast makes clear the spillover effect on economic activity of the disruption related to the rise in COVID-19 contagions. China recently reported 10,700 new cases of the Omicron variant in just one day, mostly in the economic capital Shanghai. Faced with this increase in infections, Beijing will reinforce its "zero COVID" policy by making it compulsory to be tested in order to enter many public places. These mass tests will lead to the imposition of confinements as soon as the first cases are detected.

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However, despite these policies adopted by the authorities to contain the spread of the Omicron strain, so far this year there has been a prolonged blockade in the important economic hub of Shanghai and increased mobility and public health restrictions in China.

This difficult bid by China to reconcile its "zero COVID" philosophy with economic growth is forcing many entities to cut their growth outlook for the world's second largest economy, and if contagions do not fall or policies change, neither will the downside data. "Our forecast remains subject to downside risk if containment measures fail to bring new outbreaks under control quickly or if the easing of current restrictions is delayed, given our assumption that China will adhere strictly to 'dynamic zero' until 2023," the Fitch survey publication reads.

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In the face of these forecasts, several officials are confident in developing policies that will remit the declining data, as the latest publication from Fitch Ratings Corporation puts it: "Policymakers remain committed to China's 2022 GDP growth target of around 5.5%, which seems unlikely to be met on current trends. Officials signalled their intention to boost support for macro policies in light of downward pressure on growth at recent meetings of the politburo and the Central Committee for Financial and Economic Affairs, which were led by President Xi Jinping".

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