Resurgence may have limited impact on economy

Concerns over a resurgence of novel coronavirus infections and the high transmissibility of the Delta variant have escalated rapidly since late July. That said, China has made substantial progress in vaccination since April. China had administered more than 1.8 billion vaccine doses by early August, equivalent to 1.6 times the 18-years-or-above population.

In particular, China accelerated daily vaccinations from mid-July after new infections were reported from some parts of the country.

While uncertainty remains, we (at Standard Chartered Bank) think the impact of the new COVID-19 infections on China's economy is likely to be limited, because more than 18 provinces have swiftly re-implemented stringent prevention and control measures to contain the spread of the Delta variant; and the vaccination rate in the country has gained additional pace since April.

Also, the authorities have further accelerated daily vaccinations since mid-July to ensure the spread of the Delta variant is contained as soon as possible. And governments at different levels, companies and people have become more experienced in maintaining business continuity amid the COVID-19 epidemic.

Our study suggests that in case of a mild new outbreak, which is combated with effective containment measures, and only a short period of lockdown－such as in the third quarter of 2020 and the first quarter of 2021－the negative impact is likely to be 1.2-1.7 percent of quarterly GDP, or 0.3-0.4 percent of annual GDP. Under this scenario, the lost output could be fully recovered in the subsequent quarter depending on the mix of domestic policy settings and global demand.

For example, after a brief COVID-19 outbreak in the third quarter of 2020, which caused a loss of 1.2 percent of potential GDP, China's economy rebounded to 0.3 percent above its potential level in the fourth quarter, driven by policy stimulus, pent-up demand and strong exports.

In case of a mild outbreak, additional policy stimulus needed to achieve 6 percent annual GDP growth should be no more than 0.3 percent of annual GDP, according to our estimate. If the impact of a COVID-19 resurgence is as severe as that in the first quarter of 2020－when face-to-face activity and cross-regional travel largely came to a halt for almost two months in February-March－the negative impact could amount to about 12 percent of quarterly GDP, or 3 percent of annual GDP, and additional policy stimulus needed to achieve 6 percent annual growth would increase to about 3.5 percent of annual GDP.

While the overall impact of a new outbreak on GDP may be limited, a severe COVID-19 outbreak will have a vastly different impact on various industries. Our analysis shows that the accommodation and catering, automobile, mining, electrical and equipment manufacturing, and wine and beverage sectors are likely to suffer most amid a severe COVID-19 outbreak.

However, the negative impact on electrical, equipment and automobile manufacturing is likely to be transitory. And the post-pandemic recovery process should also see the textile, chemical product, information technology, real estate, pharmaceutical and finance industries outperforming.

The author is a senior economist at Standard Chartered Bank. The views don't necessarily reflect those of China Daily.