In 2021, China managed to stamp out scattered Covid outbreaks while still delivering annual economic growth in the neighborhood of 8%. It helped that, even as the country kept its borders more or less sealed, foreign direct investment and portfolio capital kept rushing in, while exports continued to flow out. Yet as Goldman Sachs noted in a Jan. 5 report, the economic costs of Beijing’s Covid-zero stance “appear to be increasing over time as each new variant is more transmissible than the previous ones.” Omicron is a threat of a different magnitude, even for a population that’s 87% vaccinated, because the China-made shots appear to provide inadequate protection against it. Expect more citywide lockdowns like the one instituted in Xi’an, a metropolis of 13 million residents. These wreak havoc on local businesses and can snarl up supply chains. They also spook consumers. Industrial production and retail sales, which had been flagging toward the tail end of last year, may be further depressed as a result. Goldman Sachs reckons that in an extreme scenario where a national lockdown is decreed, annual growth could plunge to 1.5%, the lowest recorded since 1976.
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