OECD Sees China’s Economy Growing Solidly, But Warns On Debt

THE OECD HAS put the worst fears it had for China’s economy in June behind it. In the latest edition of its Economic Outlook, it no longer expects contraction this year. Instead, it forecasts that the economy will expand by 1.8% this year, 8.0% next year and 4.9% in 2022.

That would represent a recovery from the Covid-19 pandemic that remains way ahead of the rest of the world. The OECD sees it being the end of next year before the global economy recovers its pre-pandemic levels. That is a slightly rosier view than the IMF has taken. It sees that point taking longer to arrive.

Nonetheless, the OECD is forecasting 4% growth in 2021 (one-third of which will be accounted for by China) and 3.75% growth the year after on the back of mass vaccination and stimulus from governments and central banks.

The OECD is expecting China to end the year on a robust note, with 5.4% growth in the fourth quarter, compared to the same quarter a year earlier. This is in line with the latest Purchasing Managers Index rising to 54.9 in November, its highest since 2010.

However, the recovery is not inclusive and is unlikely to be sustainable, absent structural reforms. It is debt- and stimulus-funded infrastructure investment along with exports that have underpinned the recovery to date, in the OECD’s view. Domestic consumption is yet to return to pre-pandemic levels:

Even though sales of luxury goods are booming and box office revenues have reached new highs, the lack of a recovery in employment and falling household incomes mean that prospects for a full consumption recovery are not bright….More ambitious structural reforms in the area of social protection, and a more equitable provision of public services, are needed for consumption to rebound.

The OECD cautions that progress in rebalancing the economy has slowed, and significant financial risks remain from shadow banking and elevated corporate sector debt.

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One response to “OECD Sees China’s Economy Growing Solidly, But Warns On Debt

  1. Pingback: OECD Raises China Growth Forecast, Exhorts Structural Change | China Bystander

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