FXStreet notes that China is confronting an outbreak of the COVID-19 Delta variant. So far, daily new local cases have not exceeded double-digits but it appears to be the most severe resurgence since the second quarter of 2020. Strategists at ANZ Bank analyze the idiosyncrasy of this new wave.

“First, the outbreaks due to the more contagious Delta variant. Second, the number of affected provinces is the highest since Q2 2020. Previous local outbreaks were mainly controlled within one province without further contagion to other provinces.” 

“Given restricted movement due to local lockdowns, we expect local activities especially in the service sector to be affected temporarily. The manufacturing sector appears to be well-positioned to withstand the shock again.” 

“The length and breadth of the resurgence will determine the impact on China’s near-term growth outlook and policy direction. It has generally taken one to two months for previous outbreaks to dial down. If the strict lockdowns work and there is more vaccination progress, we may see local economies reopen in mid-August or early September. Otherwise, we will need to revisit our 8.8% 2021 GDP forecast."