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By Gilles Seurat, Fixed Income and Cross Asset Portfolio Manager, La Francaise AM.

China's year-on-year GDP growth rose from +4% in Q4 2021 to +4.8% in Q1 2022 (Source: Bloomberg). But the outlook is significantly bleaker for the end of 2022 given namely the rise in the number of COVID cases which has jumped from just a few cases to close to 25 000 cases per day over the past two months. In response to this rise, the Chinese administration continues to pursue its Zero COVID Policy and has implemented new lockdowns. For illustration purposes, Nomura estimates that ca. 356.5 million Chinese, which represents 25.3% of the population and 38.4% of Chinese GDP, are in lockdown. Consequently, mobility indicators are down 50% on average, with a much bigger drop in Shanghai, where lockdown measures are the most severe. (Source: Baidu, YoY as at 17/04/2022)

The severity of the situation is causing unprecedented congestion. Due to strict anti-COVID measures, a significant proportion of port workers and truck drivers are absent, causing congestion and backlog. In Shanghai, more than 300 ships are waiting to unload compared to a mere 50 in February. The situation has escalated and is even worse now than in 2020 and 2021!

What are the implications for the global economy? Firstly, oil consumption is dropping in China as private car travel has been restricted. Air travel is collapsing too with only one out of four domestic flights scheduled. All of these factors naturally wei......................

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