THE WORLD BANK has cut back its forecast for China’s economic growth this year by 0.8 of a percentage point to 4.3%.
The Bank forecasts 5.2% growth next year and 5.1% in 2024. Its revision for 2023 is only a 0.1 of a percentage point reduction.
The World Bank is usually among the more optimistic forecasters of China’s GDP growth. A projection for this year so below the official target of 5.5% growth underlines the severity of the economic headwinds China faces; not that many expect the official target to be hit.
The Bank expects the global economy to slow to 2.9% growth this year and not rebound next.
Following more than two years of pandemic, spillovers from the Russian Federation’s invasion of Ukraine …. is leading to high commodity prices, adding to supply disruptions, increasing food insecurity and poverty, exacerbating inflation, contributing to tighter financial conditions, magnifying financial vulnerability, and heightening policy uncertainty… Moreover, the outlook is subject to various downside risks, including intensifying geopolitical tensions, growing stagflationary headwinds, rising financial instability, continuing supply strains, and worsening food insecurity.
On China, the Bank says that strict lockdowns to control Covid-19 outbreaks have been the main reason for slowing growth. Consumer spending has been particularly subdued, and trade and manufacturing investment have lost momentum, exacerbated by supply disruptions and the negative impact of the war in Ukraine.
The pandemic has also reversed the recovery of the real estate investment seen at the start of the year.
In response, authorities have already relaxed some property and financial regulations and eased fiscal and monetary policy. However, the Bank expects more stimulus measures to mitigate the impact of the lingering pandemic and worsening terms of trade.
The Bank is uncertain about the size, composition and effectiveness of policy stimulus, noting that increased investment in the stock of public infrastructure — the tried and trusted measure authorities are most likely to turn to — faces diminishing returns.
The outlook is subject to significant risks.
Repeated COVID-19 outbreaks and strict lockdowns across major cities would curtail the recovery of consumption and services activity, disrupt supply chains, and weigh on investor confidence. In addition, renewed stress in the housing sector would further reduce real estate investment and government revenues, affect the solvency of developers and local government financing vehicles, and weigh on house prices and consumer spending.
It is Covid-19 that hangs heaviest over the outlook. The Bank estimates that a resurgence could reduce China’s growth by a further 0.5 of a percentage point in 2022 and 0.3 of a percentage point in 2023.