On the 7th of December China surprised friend and foe with an abrupt zero-covid U-turn. This year’s forecast has considerable up- and downside risks. Still, economists at Rabobank believe that from a medium-term perspective, China’s economic prospects have become more favourable after abandoning zero-Covid policy.

A pivotal pivot?

“While from a long-term perspective China’s decision to abandon its zero-covid policy is to be heralded, the short-term effects will likely turn out to be grim. The absence of (reliable and recent) data regarding new cases, hospitalization, deaths and many other relevant time series that could shed a light on the current situation, greatly complicates any attempt to make a solid impact analyses.”

“We expect a relatively mild recession that already started in the last quarter of last year and should end after the first quarter of this year. We further expect that most of the recovery hinges on a recovery in aggregate consumption and more specifically private consumption. All in all this should see the Chinese economy grow by 4.2% this year, but the uncertainty surrounding the impact of covid and the real estate sector ensure that it will likely be both an exciting and challenging year!”