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
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—Read the article from?S&P Global Market Intelligence
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—Read the article from?S&P Global Commodity Insights
ESG
U.S. Offshore Wind Development Challenges Coming Into Focus As Projects Mature
With several U.S. offshore wind projects moving through the development phase, market participants and experts May 18 highlighted some of the challenges that are being worked through, like construction risk, financing, and transmission complexities. A critical underpinning of New York's offshore wind market is the state's policy framework, which is needed to drive investment, Fred Zalcman, executive director of the New York Offshore Wind Alliance, said during the Independent Power Producers of New York Spring Conference in Albany.
—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
Climate change is disrupting the global economy and affecting everyone. The transition from fossil fuel vehicles to electric vehicles is often considered a critical step in decarbonizing the global transportation system. The adoption of EVs has accelerated over the past few years. Since 2012, global EV sales have grown at a CAGR of 56%. In 2021, sales doubled from the previous year, hitting a record high of 6.75 million units.
—Read the article from?S&P Dow Jones Indices