Fitch Trims China’s 2022 Growth Forecast on Virus Lockdowns

(Bloomberg) -- Fitch Ratings cut its forecast for China's 2022 gross domestic product growth due to Covid-19 lockdowns that have hobbled the economy.

The agency trimmed its growth estimate to 4.3% from 4.8%, according to a statement from the agency on Tuesday. China's economic activity contracted sharply in April as restrictions put in place to stem the spread of the virus closed factories, curbed mobility and snarled supply chains.

While Fitch expects disruptions to ease this month, the agency cited persistent risks including the possibility of China's restrictions failing to quickly control new outbreaks, or a potential delay in the easing of current curbs. China is expected to strictly follow its Covid Zero strategy until 2023, Fitch said.

Banks from UBS Group AG and Barclays Plc to Standard Chartered Plc and Bank of America Corp have cut their forecasts for China's full-year economic growth in recent weeks as the nation maintains its tough virus restrictions to try and stamp out the resurgence. Economists polled by Bloomberg last month once again lowered their growth forecast for 2022 to 4.9%.

Fitch expects additional policy support in the coming quarters, including an acceleration of infrastructure investment and further cuts to policy interest rates and the reserve requirement ratio. 

“However, adjustments are likely to be modest against the backdrop of monetary policy tightening by other major central banks and the Chinese authorities' caution that rising interest rate differentials may spark capital outflow pressures,” Fitch said.

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