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Covid lockdown extended in Shanghai as outbreaks put economy on hold

Shanghai has been plunged into an extended lockdown and some residents face another 10 days of isolation in their homes as China’s strict zero-Covid policy threatens to derail the country’s economy.

The eastern half of China’s biggest city had been due to emerge on Friday from a four-day lockdown aimed at crushing a persistent outbreak of the Omicron variant, but the extension was announced late on Thursday night.

A lockdown of the western half of the city went ahead as planned on Friday morning, leaving a majority of the city’s 26 million people still in lockdown in the latest sign that China’s financial powerhouse is struggling to eliminate the outbreak.

The virus has forced lockdowns in several large cities this year, making the current outbreak the country’s worst since the pandemic started in Wuhan in 2019 and threatening to derail the world’s second-largest economy.Figures released on Friday showed that factory activity in China slumped at the fastest pace in two years in March, as the resurgence of Covid and the economic fallout from the Ukraine war triggered sharp falls in production and demand.

A closely watched measure of output – the Caixin/Markit manufacturing purchasing managers’ index (PMI) – fell from 50.4 in February to 48.1 in March, indicating the steepest rate of contraction since February 2020.Economists at Morgan Stanley cut China’s economic growth forecast for this year sharply, while Citigroup warned of risks to the second-quarter outlook.

Trinh Nguyen, senior economist at Natixis in Hong Kong, said China’s zero-Covid policy was now the biggest risk to the Chinese economy and predicted worse was still to come.

“April is going to be horrible with the Shanghai lockdown extended,” she said. “And this will reverberate regionally and globally as it impacts both demand and supply.”

The German carmaker BMW has closed its plants in Shenyang, a north-eastern city in Liaoning province, because of pandemic controls.

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