BEIJING: The global economy, already struggling with war in Ukraine and the stagflation risks it’s fanning, is bracing for greater disruption as China scrambles to contain its worst outbreak of Covid-19 since the pandemic began.

       Since Wuhan two years ago, China has had relative success in minimising disruption by bringing virus cases quickly under control.

       Now, the geographic spread of infections and higher transmissibility of the Omicron variant is challenging the country’s hawkish pandemic strategy of aggressive testing and locking down whole cities or provinces.

       If China fails to contain Omicron’s spread, further movement restrictions would derail the economy’s promising start to the year, weakening a key pillar of global growth.

       As manufacturer to the world, any disruptions to exports resulting in shortages could also drive up inflation internationally, just as central banks begin hiking interest rates, like the Federal Reserve is expected to do today.

       “You take all these little paper cuts and you start to add them up and you could be looking at a potential significant slowing of the global economy,” said Jay Bryson, chief economist at Wells Fargo & Co.

       Much depends on how quickly China can contain the virus. The nation reported more than 5,000 new infections for Monday for the first time since the early days of the pandemic. While a small outbreak by global standards, it is prompting officials to lock down more cities, with more than 45 million people restricted from leaving their homes.

       Shenzhen’s 17.5 million residents were put into lockdown on Sunday for at least a week.

       The city is located in Guangdong, the manufacturing powerhouse province, which has a gross domestic product of US$1.96 trillion (RM8.25 trillion), around that of Spain and South Korea, and which accounts for 11% of China’s economy, according to Bloomberg Economics.

       Guangdong’s US$795bil (RM3.35 trillion) worth of exports in 2021 accounted for 23% of China’s shipments that year, the most of any province.

       Bloomberg Economics warns that the restrictions in Shenzhen could inflict the heaviest coronavirus-related blow to growth since a nationwide lockdown in 2020, with the additional threat of sending supply shocks rippling around the world.

       Morgan Stanley cut its growth forecast for the year to 5.1%, below the government’s target of about 5.5%.

       The forceful action to contain the worst Covid-19 outbreak since early March will deal a direct hit to the production and consumption sides of a province that accounts for 11% of gross domestic product.

       Previous steps to contain virus flare ups left manufacturing unscathed for the most part. This lockdown will hit output in key industries such as tech and machinery that feed into global supply chains.

       On Monday, residents in northeastern Jilin province were asked not to leave or travel. The region of 24 million people is home to Changchun, an industrial hub of some nine million that accounted for about 11% of China’s total annual car output in 2020.

       Beijing has vowed to reduce the impact of virus controls on the economy by making them more targeted and shorter.

       Shenzhen, which is aiming to complete its lockdown in a week during which it will test the entire population three times – and the export hub of Dongguan have both said factories outside the highest risk districts can continue operating if they keep staff in a bubble with regular testing. — Bloomberg