Despite having high vaccination rates, the three East Asian countries are struggling to keep Covid-19 cases at bay. GDP prospects took a hit in March as the stringent ‘zero Covid’ mandates in mainland China and Hong Kong led authorities to reinstate lockdown measures in light of surging new cases. Meanwhile, in Korea, new Covid-19 cases and deaths have reached record highs in recent weeks, but the government seems less willing to limit mobility and business activity and relies primarily on widespread testing. Nevertheless, significant bottlenecks and weaker external demand from China are likely dragging on output in Korea.
Looking ahead, tough stances on Covid-19 in China and Hong Kong could lead to a prolonged softening in domestic demand conditions if cases fail to subside in the coming months, which would likely spell trouble for GDP prospects for the region more broadly. Moreover, new Covid-19 cases globally have shown signs of increasing in March. The World Health Organization has stated that the resurgence could be the result of governments loosening restrictions too soon, which suggests that the pandemic is not as far behind us as originally hoped.
Insights from Our Analyst Network
On China’s Covid-19 outlook with respect to global supply chain disruptions and GDP growth, analysts at Goldman Sachs noted:
“Admittedly, with surging new cases, this wave of local Covid outbreak appeared to be the most severe one since early 2020, and thus the disruptions to logistics and ports could be potentially much worse than those in early 2021 and last summer. […] Based on our estimate, cities with “high/mid-risks” accounted for more than 30% of the GDP nationwide currently. Our scenario analysis suggests 30% of the country imposing a 4-week lockdown would reduce annual GDP [growth] by 1 percentage point.”
Commenting on the outlook for Hong Kong’s economy, economists at EIU noted:
“[The] economic expansion will slow drastically in 2022 as the territory faces a sustained wave of coronavirus infections and heightened restrictions on public activity. Private consumption will be hit the hardest, as the rules constrain consumer spending, and unemployment as well as underemployment rises.”