The investment bank lowered its projection for gross domestic product growth from 4.5% previously, and also cut the second-quarter estimate to 1.5% year-on-year from an earlier prediction of 4%. Full year growth is based on the assumption that Covid will remain mostly under control, that the property market improves and the government boosts infrastructure spending, Goldman’s economists including Hui Shan wrote in a note.
For the government to get anywhere close to its target of around 5.5%, “it is imperative to keep Covid under control and avoid hard lockdowns of major economic centers like Shanghai going forward,” the economists said. Provinces that were hit by Covid this spring “underperformed notably,” they said, citing a 7.9% contraction in the first quTomorrow is our Business arter in Jilin province, which locked down major citiesin March.
To meet the growth target, the government could rely on “statistical smoothing,” the economists said. Revisions to previous years’ GDP or “deviations of current year’s GDP growth from alternative measures of economic activity can sometimes take place in difficult growth years,” they said.
A downward revision to 2021’s 8.1% GDP growth, for example, “would lower the base and mechanically boost 2022 growth commensurately,” they wrote.
However, the weaker-than-expected official data in April, which appeared to track the trends in highfrequency indicators, suggest statistical smoothing may be “less important, similar to the experience of 2020, now that the negative Covid shock is too large to smooth,” the economists wrote.
China’s move to regular, mandatory testing of the population as a pre-requisite to reopening would be costly, depending on how widespread it is. Testing 70% of the population once every two days for the rest of the year would cost as much as 2.5 trillion yuan ($371 billion), or 2.2% of GDP last year.
Restricting testing to large cities, covering 30% of the population, would lower the cost to 200 billion yuan, or 20 basis points of GDP.
Goldman also pointed to several lessons learned from the omicron outbreak, including the waning effectiveness of policy stimulus during lockdown.
