• In the last few days, mainland China has seen its worst Covid outbreak since the initial height of the pandemic in early 2020 — when the economy contracted.
• "Economic loss may be real this time," Citi analysts said in a report, estimating the outbreak could hit China's first quarter GDP by at least half of a percentage point.
• Economists said it's too early to tell what the full-year impact of lockdown measures is as some may last only a week or two.

BEIJING — China's latest Covid-19 outbreak could hit first-quarter gross domestic product by at least half of a percentage point, Citi analysts predicted in a report Tuesday.

In the last few days, mainland China has seen its worst Covid outbreak since the initial height of the pandemic in early 2020 — when the economy contracted. The latest surge in cases, which stems from the highly transmissible omicron variant, has forced some manufacturing hubs across the country to suspend or limit production.

The most affected regions account for 16.7% of national GDP, according to Citi estimates.

"Economic loss may be real this time," the analysts said. "Jointly considering the spillover effect to other regions, we think the lockdown and tightened quarantine measures this round could potentially deduct ~0.5-0.8 ppt of GDP growth in Q1, assuming no policy responses."

Mainland China reported 1,860 confirmed Covid cases for Tuesday, down from more than 3,500 new cases a day earlier. The country has not reported new deaths, and the number of new cases is still far lower than in other parts of the world, such as Europe.

Beijing's zero-Covid policy measures have prompted analysts to issue reports about growing risks of drags on the world's second-largest economy, even if few are able to put a number on it yet.

Uneven picture

"We believe the omicron wave presents both risks and opportunities for China," Bank of America Securities' China equity strategy team said in a report Tuesday.

If the pandemic is managed well, the analysts said, the outbreaks could help China prepare to reopen its borders. But if not, they said the omicron wave "could cause significant downside to China's GDP growth and disruption to the global supply chains in the near term, and potentially accelerate the decoupling and supply chain relocation in the medium term."

So far, the analysts' research and checks with local factories reveal limited impact on the production of chips, autos, apparel and beer, among other industries. The Android smartphone supply chain could be among the harder-hit, the report said. But, like other industries, production could be shifted to other locations.

For autos, the analysts said that "according to channel checks, a couple of Shanghai-based names saw bigger disruption, while BYD's Shenzhen plant is operating normally as of 14th March."

BYD did not immediately respond to a CNBC request for comment.

The lockdown and production suspension measures announced by Shenzhen and Dongguan — two manufacturing hubs in the export-heavy province of Guangdong — will last only about a week.

Economic data for January and February reported on Tuesday came in well above expectations, and the National Bureau of Statistics spokesperson said the impact of the virus would mostly be at a local level.

"March may be a different picture depending on how long the restrictions in Shenzhen and Jilin last for," said Francoise Huang, senior economist at Euler Hermes, a subsidiary of Allianz. "If it just lasts for one or two weeks, it might become a blip in the data."

The latest Covid wave has hit the northern Chinese province of Jilin the hardest, with the region accounting for the majority of daily new cases. The province banned travel to other parts of China on Monday, and is building emergency hospitals.

Although Jilin's capital of Changchun is an auto manufacturing center, contribution to China's GDP is 0.65%, less than Dongguan's 0.95% and Shenzhen's 2.73% share, according to Citi.

Targeted zero-Covid policy

China has upheld a zero-Covid policy of travel restrictions and swift lockdowns of neighborhoods or office towers to control outbreaks. At least in Beijing, individuals with a travel history linked to confirmed cases may need to quarantine at home for a week or more.

But the implementation of the policy has been targeted.

For example, a Shanghai government official said Tuesday there is no need to lock down the city to control the outbreak. And while Shenzhen has ordered overall production halts and remote work, its ports largely remain open.

"We have been notified that all ports and terminals in Shenzhen (Yantian and Chiwan) are currently working as normal," shipping giant Maersk said in a statement. "This includes vessel operations, yard handling and gate-in-and-out."

"However, local warehouses have been closed and trucking services have been impacted due to the lockdown. In other Chinese ports, there hasn't been any operational impact, but landside transportation efficiency has been reduced," the company said.

The Yantian port said in an online statement Monday it was operating normally.

The Shenzhen government announced Tuesday the closure of the Liantang Port at the land border with Hong Kong. Shenzhen has reported several confirmed Covid cases from freight drivers across that border, but no announcements of other port closures.

If recent lockdowns persist, the "economic pain" could last past the first quarter into the early part of the second, a Moody's Analytics report said Tuesday.

Can lockdowns still work?

"China may be early enough in the wave that the various lockdowns will reduce COVID-19 cases to zero by the end of March, unlike the situation in Hong Kong, where the current surge in cases has been ongoing since February with no equivalent lockdown," the report said. "However, this is shaping up to be the biggest test for China's zero-COVID stance."

China began rolling out a nationwide vaccination campaign in late 2020 — with doses largely from Sinopharm and Sinovac. As of Monday, about 1.24 billion people had been fully vaccinated, including 211.62 million people over the age of 60, according to the National Health Commission.

The commission said that 65% of older adults diagnosed with severe Covid were not vaccinated.

The share of the BA.2 omicron subvariant among Covid cases has increased significantly in the last two months, China's National Health Commission said Tuesday.

The new variant is more transmissible than previous strains, but it's unclear whether it's more deadly.

— CNBC's Holly Ellyatt and Michael Bloom contributed to this report.