China has tried to control the latest Covid outbreak with frequent virus testing requirements. Pictured is a nucleic acid testing site on May 25, 2022 in Beijing, China.

Kevin Frayer | Getty Images News | Getty Images

BEIJING — Two investment banks slashed their Chinese GDP forecasts this week for the third time this year based on the toll of lingering Covid controls.

Both estimates are below 4%, well below the official target of around 5.5% growth for 2022.

UBS cut its forecast to 3%, down from 4.2% previously and the lowest among estimates tracked by CNBC.

JPMorgan cut its growth forecast to 3.7% from 4.3%.

“The easing of Covid restrictions is unlikely to be as rapid as in 2020 given the nature of Omicron,” UBS economist Tao Wang and a team wrote in a report on Tuesday.

“The continued restrictions and lack of clarity on an exit strategy from current Covid policy are likely to weaken business and consumer confidence and hamper the release of pent-up demand,” the report said.

China was the only major economy to grow in 2020, with a revised GDP of 2.2%, as the country was able to quickly resume production while much of the world remained in lockdown.

However, this year’s Covid outbreak stems from the most transmissible omicron variant. Many countries have moved to a “living with Covid” strategy. Beijing has maintained a much stricter “dynamic zero-Covid policy”, citing the risk of overwhelming its public healthcare system and a lower level of vaccination rates among the country’s elderly.

“Uncertainties in the economic forecast are high,” JPMorgan China chief economist Haibin Zhu and a team wrote Monday.

“The implementation of the zero-COVID policy remains the greatest uncertainty, including the risk of prolonged disruption to economic activity and the risk of a repeat of the Omicron wave,” analysts said, adding that the government could introduce more stimulus measures in the coming months.

Learn more about China from CNBC Pro

Economists are also concerned about the quality of Chinese growth, given increased stimulus and spending on Covid testing.

JPMorgan’s Zhu estimates the cost of regular Covid testing will be 40 billion to 50 billion yuan ($5.97 billion to $7.46 billion), or 0.4% to 0.5% of GDP per year at least.

“This does not include public health expenditures, the provision of community services during shutdowns, and the construction of testing stations and quarantine centers,” the report said, noting that workers should also take time out of their day. to line up for virus testing.