This week, the International Monetary Fund cut its global GDP growth forecast for 2022 and 2023 in the wake of the economic disruption caused by Russia's invasion of Ukraine. At the same time, COVID-19 lockdowns in China are weighing on the Chinese economy, and Bank of America economist Ethan Harris has dialed back his 2022 GDP growth expectations in China to the low end of the consensus range.
IMF Global Forecast: The IMF has cut its global GDP growth forecast from 4.4% to 3.6% in 2022 and from 3.8% to 3.6% in 2023. In its updated projections, the IMF said sanctions tied to the Ukraine war will have "a severe impact on the Russian economy" and estimated Russian GDP will decline 8.5% in 2022 and another 2.3% in 2023.
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China's Ongoing Lockdowns: In China, Harris said COVID-19 lockdowns are proving to be longer-lasting and more severe than he initially expected.
"New flare-ups keep happening, disrupting transportation and production in major manufacturing hubs like Shanghai," Harris said.
As a result, he is expecting months of economic disruptions in China and has cut his 2022 China GDP growth forecast from 4.8% to 4.2%.
In addition, Harris said investors should take China's fourth-quarter 2021 and first-quarter 2022 reported GDP growth with a grain of salt. China reported 4.8% first-quarter GDP growth earlier this week and 4% fourth-quarter GDP growth in January. Harris said both numbers are likely inflated a bit, but the degree of the inflation is anyone's guess.
Benzinga's Take: China's "dynamic zero-COVID" policies appear to be severely disrupting its economy, and the ongoing breakouts throughout the country suggest the policies have seen only limited success at best.
Meanwhile, the iShares China Large-Cap ETF (NYSE:FXI) has generated a total return loss of 32.8% in the past year, while the SPDR S&P 500 ETF Trust (NYSE:SPY) has generated a total return gain of 8.6%.
