The Economic and Credit Consequences of China’s Zero-COVID Strategy
Today is Friday, May 20, 2022, and here’s your curated selection of essential intelligence on financial markets and the global economy from S&P Global. Subscribe to be notified of each new Daily Update.
China’s stringent zero-COVID policy will continue to constrict economic output and credit conditions throughout this year.
As the world’s second-largest economy has countered surging coronavirus cases in Shanghai and other areas with strict lockdowns, S&P Global Ratings anticipates that the aggressive containment measures will ultimately lead to lower growth and tighter financing conditions, with significant implications for China’s domestic employment, consumption, investor sentiment, supply chains, small and midsize enterprises, and broader capital markets.
S&P Global Economics this week revised downward its full-year economic forecast for China to 4.2%, from 4.9%, on the assumption that the lockdowns will be lifted gradually but that the overall virus-elimination strategy will be the status quo for some time.
This slowdown comes as China intensifies its focus on both slowing aging in its population and achieving a more equitable society with a plethora of policy directives and regulations.
“China's increasing focus on demographics and uneven income distribution is pushing a broad range of regulatory changes across education, housing, labor, and social welfare. S&P Global believes regulatory risks will stay elevated for corporates in related industries for years to come. These issues are long term in nature, and COVID-19 has exacerbated their effects and brought them into sharper focus for policymakers,” S&P Global Ratings said in research published this week. “Should China succeed in balancing growth and reducing wealth and income disparities, it could reap a healthier and more stable period of economic growth. However, in the near-term, more volatility is likely for some business sectors—education and internet companies come to mind.”
The lockdowns in Shanghai and regions near the country’s economic epicenter have dented manufacturing activity, battery metals demand, cobalt market sentiment, and other commodities production and activity, according to S&P Global Commodity Insights.
The economic and credit implications of the country’s approach may affect other economies, particularly emerging markets (EMs), near and far. Thailand, Malaysia, and the Philippines have the highest exposure of all EMs to China’s weakening consumption and further supply-chain disruptions, according to S&P Global Ratings.
“A sharper-than-expected slowdown in China is threatening EMs’ growth, but its impact would depend on the drivers of such a slowdown, as well as the ensuing policy reaction,” S&P Global Ratings said in its May report on emerging markets. “EMs that supply metals to China--such as Chile, Brazil, and South Africa—may see an upside from China’s economic slowdown if its government responds to pandemic-related weakness with more spending on infrastructure. Any pandemic-induced disruptions to supply chains heighten inflationary risks to EMs.”
Today is Friday, May 20, 2022, and here is today’s essential intelligence.
Written by Molly Mintz.
Economy
Emerging Markets Monthly Highlights: China's Lockdowns Ratchet Up Risks
Following the drastic economic fallout from more stringent-than-expected lockdowns, S&P Global Ratings earlier this week scaled back its forecast for China’s GDP growth in 2022 to 4.2% from 4.9% in its previous forecast. S&P Global Ratings’ baseline scenario assumes that the current lockdowns will be lifted gradually; however, it believes that the government’s general COVID-19 stance is unlikely to shift substantially any time soon.
—Read the report from S&P Global Ratings
Capital Markets
RBI Faces Pressure Over Future Of Key Russian Unit Amid Share Price Plunge
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—Read the article from S&P Global Market Intelligence
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Global Trade
China's Manufacturing Steel Demand Takes Hit From COVID-19 Outbreak; Recovery To Be Slow
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ESG
U.S. Offshore Wind Development Challenges Coming Into Focus As Projects Mature
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—Read the article from S&P Global Commodity Insights
Energy & Commodities
Midstream Eyes Adding Haynesville, Gulf Coast Gas Delivery Capacity On Bright LNG Demand Prospects
Strong demand for LNG terminal feedgas continues to drive pipeline ambitions to deliver more natural gas to the U.S. Gulf Coast, the latest being a greenfield and a brownfield project proposed by Enbridge. Enbridge's Texas Eastern Transmission announced a non-binding open season for two pipeline expansions that comprise its Louisiana Gulf Coast Expansion Project(s). The open season will run May 16-June 3.
—Read the article from S&P Global Commodity Insights
Technology & Media
Driving Toward A Greener Future
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—Read the article from S&P Dow Jones Indices