Economists are maintaining their pessimism despite a positive batch of economic statistics from China last week, including retail sales and industrial production surpassing predictions.

The full-year growth predictions from UBS were reduced from 3% to 2.7% for 2022 and from 5.4% to 4.6% for 2023.

Tao Wang, chief China economist at UBS, noted in the note that while some of the present policy support will start to show results in Q4 of this year, the Covid situation “will likely remain problematic through the winter and early 2023, and export growth is forecast to decline.”

Wang furthers that the updated 2023 prediction is still predicated on a scenario in which Covid restrictions begin to loosen in March and the real estate market quickly stabilises.

However, these limitations have negatively impacted investor sentiment, and Mattie Bekink, China director for the Economist Intelligence Corporate Network, stated as such on CNBC’s “Squawk Box Asia.”

Regarding the country’s zero-Covid policy, she claimed that “we are not seeing the policy-levers being pulled necessary to support a change.” “In essence, zero-Covid has crushed Chinese investment confidence.”

She said of China’s intermittent regional lockdowns: “It’s somewhat of a chokehold on China’s economy right now.”

Weaker yuan Even after the onshore and offshore yuan both dropped to their lowest levels since July 2020 last week, economists still anticipate further yuan weakness.

The next important level to watch is 7.20, which was last hit in May 2020. “We expect CNY depreciation to persist in the near-term, bolstered largely by broad USD strength,” Goldman Sachs economists wrote in a note.

Given the “diverging U.S.-China monetary policy trajectories and weakening Chinese exports,” UBS economists also forecast that the yuan will lose more ground to the dollar. By the end of 2022, according to Wang of UBS, the USD/CNY will trade at about 7.15.

The 20th National Congress is set to begin on October 16, but Goldman Sachs experts do not anticipate any abrupt changes in the currency.

“We do not anticipate extremely dramatic depreciation in the CNY,” they continued, “since stability would be sought around such a significant political event.”