Lockdowns will knock China’s economy off target

Significance

Lockdowns in Shanghai and other major cities over the past few months have interrupted China's economic recovery. There is a significant mismatch between China’s zero-COVID policy and normalisation elsewhere in the world. China is building the testing and quarantine infrastructure necessary to maintain the zero-COVID policy indefinitely.

Impacts

• Asian economies are especially exposed, given their close ties to China.
• Economic activity in Shanghai and other cities will mostly return to normal by the end of June, unless there is a new wave of infections.
• If the virus resurfaces and restrictions are reimposed, investor and consumer confidence will slump towards 2023.