Tag Archives: Global Economic Prospects

World Bank Lowers China Growth Forecast

The World Bank's Global Economic Prospects, June 2022 update cover page

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 revision to its forecast in January comes in the latest update to its Global Economic Prospects report.

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.

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World Bank Sees China’s GDP Growth Continuing To Decelerate

ECONOMIC GROWTH IS expected to decelerate to 6.2% this year from an estimated 6.5% in 2018, and trend towards 6% thereafter, according to the new edition of the World Bank’s Global Economic Prospects.

The Bank cites weaker exports amidst elevated global trade uncertainty as the main cause of the slow down, although domestic demand is seen as remaining robust as policy boosts consumption. The impact of higher tariffs as a result of the US-China trade dispute, the Bank expects, will be offset by fiscal and monetary stimulus.

The risk is that propping up growth will slow the necessary work of deleveraging the economy.

As the Bank notes:

New regulations on commercial bank exposures to shadow financing, together with stricter provisions for off-budget borrowing by local governments, have slowed credit growth to the non-financial sector. However, in mid- and late 2018, the authorities reiterated their intention to pursue looser macroeconomic policies to counter the potential economic impact of trade disputes with the United States.

Four key charts from the report:

A screenshot of four World Bank charts on China's economy.

And six more:

Six charts from the World Bank Global Economic Prospects report, January 2019

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World Bank Sees China’s Growth Decelerating Into 2013

The World Bank’s latest Global Economic Prospects makes grim reading. It forecasts that the continuing ripple effects from the 2008 global financial crisis will slow world economic growth to 2.5% this year, with the eurozone contracting. In June, the Bank had forecast 3.6% growth for the global economy. “Even achieving these much weaker out-turns is very uncertain” the report’s lead author, Andrew Burns, writes on his Bank blog. The world faces “a year fraught with uncertainties”.

For China, the Bank forecasts that GDP growth will fall to 8.4% in 2012, down from 2011’s 9.2%. June’s forecast had been for 8.7% growth this year. As the Bank points out, 8.4% growth is “still robust” and it expects authorities “to continue to dampen ‘overly-fast’ growth in a number of economic sectors”. It adds that “the prospects for a soft landing for China remain high”.

Nonetheless it sees three downside risks to its growth forecast: trade growth slows even further in the event of a serious deterioration in Europe’s economies; the capital outflows from emerging economies, including China’s, seen in recent months turn into full spate; and China’s real estate market, which the Bank says is arguably still overinflated, weakens further. Local government borrowing and bank balance sheets are co-joined risks.

In June, the Bank had forecast growth would pick up modestly in 2013, to 8.8%. Now, it says growth will slow further next year to 8.3% “in-line with the country’s longer term potential growth rate”.

That pace of growth is starting to skirt the 8% that is always held up as the minimum needed to ensure social stability. It may force some concentration of minds on the need to push through structural reform to rebalance the economy away from export- and investment-led growth to domestic consumption. Or it may just make nervous party leaders in the midst of a leadership transition more determined to hunker down.

Footnote: This is the Bank’s summary of China’s prospects, from the East Asia-Pacific regional sector of the outlook:

In China, the lagged effects of monetary policy tightening (both in terms of interest rates and regulatory adjustment) are expected to combine with weak external demand to slow GDP growth from 9.1 percent in 2011 to 8.3 percent by 2013. The bulk of activity is expected to come from domestic demand―with private consumption and fixed investment contributing 3-and-4 percentage points to GDP in 2012―while net exports afford only a modest 0.2 point addition to growth. Inflation is anticipated to decline; and monetary policy relaxation could be in the cards during 2012. Key domestic risks for China are the property sector, local government borrowing, and bank balance sheets; but the baseline scenario envisages that policy will focus closely on these aspects, with efforts sufficient to stem systemic effects on the economy.

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