June 9, 2022
BEIJING – The World Bank has revised its economic forecast for China down to 4.3 percent this year, from a higher expectation of 5.1 percent in December, amid COVID-19 outbreaks and changes in the global environment, according to a report released on Wednesday.
This downward revision came as the largest COVID-19 wave in two years and the resulting mobility restrictions have disrupted China’s growth normalization after a strong start in early 2022.
The World Bank said in the report that the growth momentum is expected to rebound in the second half of the year with aggressive fiscal stimulus, monetary easing and further relaxation of housing sector regulations to mitigate the economic downturn and, with that, China’s economic growth is projected to rebound to 5.2 percent in 2023.
“In the short term, China faces the dual challenge of balancing COVID-19 mitigation with supporting economic growth,” said Martin Raiser, World Bank country director for China.
“While the government has stepped up macroeconomic policy easing, the dilemma facing decision-makers is how to make the policy stimulus effective, as long as mobility restrictions persist,” Raiser added.
According to the report, the investment growth, driven by infrastructure investment, is projected to accelerate, partly offsetting weakness in real consumption growth.
As external demand weakens and supply-side constraints persist, the current account surplus is projected to narrow to 1.3 percent of GDP in 2022. With higher imported food and fuel prices, consumer price inflation is expected to rise but remain below the government’s annual “around 3 percent” inflation target.
On the upside, if the pandemic is brought under control and domestic restrictions are fully lifted, China’s full year growth could be higher than currently projected, thanks to the recently announced additional stimulus measures, the report said.
Over the medium term, there is a danger that China will remain tied to the old playbook of stimulus-led investment to boost economic growth, according to the report.
“High levels of indebtedness of corporates and local governments limit the effectiveness of policy easing and store up further risks down the line,” said Ibrahim Chowdhury, World Bank senior economist for China.
The report noted that structural reforms to encourage a shift towards consumption, address social inequality and rekindle innovation and productivity growth – including in technologies vital for China’s dual carbon goals – would help achieve a more balanced, inclusive and sustainable growth trajectory for China.