China's economy braces for further downturn as COVID-19 and protests spread

The number of COVID-19 diseases is increasing, and protests against tight covid restrictions are intensifying in China. Against this background, the country's economic activity in November fell sharply and is likely to continue to decline.

According to Bloomberg, a decline in Chinese economic activity was already evident in October, and in November the figures were even lower. The main reason is that the virus is spreading rapidly across China, and major economic centers such as Beijing, Zhengzhou and Guangzhou are suffering from severe restrictions. It was especially affected by residents’ movement limits. Thus, until the government loosens its grip, economic activity has little chance of recovery.

Moreover, the economy suffering from the government's attempts to reduce COVID-19 cases is likely to continue. Goldman Sachs Group, Macquarie Group and Hang Seng Bank economists are strong supporters of this idea. Although authorities are gradually loosening controls, existing restrictions continue to provoke public anger. That is why protests erupted last weekend.

Under these conditions, the People's Bank of China (PBOC) is doing its best in attempting to maintain the economic growth, as analysts' forecasts remain disappointing. According to the latest Bloomberg survey, China's economy will grow by 3.3%. Excluding 2020 data, it’s the lowest figure in 50 years.

On Friday, the PBOC announced a reduction in the reserve requirement ratio for banks. It was reduced by 25 basis points. After such measures, 500 billion yuan ($70 billion) should appear in the country's economy. Thus, banks will be able to help businesses affected by COVID-19 by providing them with more loans.