As Shanghai announced another daily record of 16,766 cases on Wednesday, the director of the city’s epidemic control team was quoted by state media as saying that the outbreak in the city “is still running high”. “The situation is extremely bleak,” Gu Honghui said. Although low by international standards, this is China’s worst epidemic since the Wuhan virus broke out in January 2020, triggering a global pandemic. The entire population of Shanghai’s 26 million is now locked in and there is growing resentment among people living with travel restrictions for weeks as the authorities stick to their policy of eliminating Covid Zero disease. At least 38,000 medical personnel have been deployed in Shanghai from other parts of China, along with 2,000 military personnel, and the city is massively testing residents. A separate outbreak continues in the northeastern province of Jilin and in the capital, Beijing, nine more cases have been reported. Workers closed an entire mall in the city where a case had been identified. There is growing evidence that China’s economy is slowing sharply due to lockdowns. China’s services activity shrank at the sharpest pace in two years in March as rising cases reduced mobility and boosted demand. Caixin Responsive Market Index (PMI) fell to 42.0 in March from 50.2 in February. A drop below the 50-point mark separates growth from shrinkage. The same survey showed a contraction in the country’s giant manufacturing sector last week and economists warned on Wednesday that it could get worse as the lockdown in Shanghai begins to affect data for the coming months. Capital Economics’ Alex Holmes said leaks in the rest of Asia since the Covid outbreak in China have been relatively small so far, but “the possibility of a major supply chain disruption remains a growing risk.” “The longer the current wave lasts, the greater the chance,” he said. “An additional risk factor is that after many months of disruption along their entire length, the global supply chains are already very tense. “There is now a much greater chance that a small congestion will have a big impact.” A two-year pandemic has displaced the complex supply chains of the global economy, causing prices for goods, food and consumer goods to rise sharply. The war in Ukraine has boosted inflation, especially in oil and grain prices, and further shutdowns in China could worsen the situation. Supply pressures in the Asia-Pacific region will remain high at least until the end of the year, with inflation of energy and raw material costs creating the greatest cost pressures for corporate debt issuers, followed by the effects of congestion on transfers, according to a new report by Moody’s Investors Service. “The Russia-Ukraine crisis and the ongoing pandemic disruption will hamper supply-side recovery, despite initial signs of a gradual recovery in Asia-Pacific,” said Lillian Lee, a senior credit rating officer at Moody’s. “All corporate sectors in the region will be exposed to cost risks from supply-side pressures to varying degrees at least by the end of this year. It comes amid a warning from a top central bank chief that the global economy may be on the brink of a new inflationary era where consumers will be faced with persistently higher prices and rising interest rates as globalization slows. Agustín Carstens, head of the Bank for International Settlements, said higher interest rates could be required for several years to fight the 6.2% inflation rate in the UK.
