January 13, 2023
WASHINGTON – The World Bank has forecast China’s economy to grow at 4.3 percent this year, then rise by 5 percent for 2024, the first major projection made after the country entered a new phase of COVID response.
Given the development of the epidemic, the increase in vaccination levels, and extensive epidemic prevention experience, China’s health authorities announced they would downgrade the management of COVID-19 and remove it from infectious disease management requiring quarantine as of Sunday.
“Growth in China is projected to strengthen in 2023 as pandemic-related restrictions ease,” the Washington-based lender said in its Global Economic Prospects, released on Tuesday.
It predicts gross domestic product expansion is set to slow in all major economies and regions except China.
For example, growth in the United States is set to fall to 0.5 percent in 2023, which will be 1.9 percentage points below previous forecasts and the weakest performance outside of official recessions since 1970, the World Bank said in the semiannual report.
For the eurozone, growth is expected at zero percent, also a downward revision of 1.9 percentage points, while in China, projected growth at 4.3 percent in 2023 is 0.9 percentage point below the forecast the World Bank made half a year ago.
Globally, growth is slowing sharply in the face of elevated inflation, higher interest rates, reduced investment, and disruptions caused by the conflict in Ukraine, with 2023 growth expected to slow to 1.7 percent from the 3 percent forecast six months ago.
That would be the third-worst performance in nearly three decades, overshadowed only by the 2009 and 2020 global recessions, according to the World Bank.
In November last year, weeks before China shifted its focus of epidemic prevention and control from preventing infections to beefing up treatment of severe cases, the International Monetary Fund (IMF) predicted China’s economy to grow at 3.2 percent for 2022, then rise to 4.4 percent in 2023.
That figure is 1.7 percentage points higher than the projected global average at 2.7 percent, according to IMF’s World Economic Outlook.
The World Bank noted that its baseline projections assume an uneven reopening in China accompanied by recurring COVID-19 outbreaks and economic disruptions, which it says could reduce China’s growth relative to the baseline by 0.5 percentage point.
“There may be positive surprises to China’s economic outlook. This includes an orderly easing of mobility restrictions followed by a strong release of pent-up demand for consumption and services,” the report said.
A quicker-than-expected recovery in the country’s real estate sector is another upside possibility, it added.
What the World Bank expects as “positive surprises” seem to have found solid footing to become a reality on the ground in China, which has kicked off a 40-day holiday travel period, starting on Saturday through Feb 15.
Guo Shuqing, chairman of the China Banking and Insurance Regulatory Commission, said China will make its prudent monetary policy more targeted and effective to facilitate the overall recovery and improvement of its economy.
“Converting the current total income into consumption and investment to the maximum extent possible is the key to faster economic recovery and high-quality growth, and financial services have a lot to offer in the process,” Guo was quoted by Xinhua as saying on Sunday.
The annual Central Economic Work Conference held in mid-December in Beijing has made arrangements to defuse and prevent risks in the realty sector and ensure its healthy development, highlighting the principle that “housing is for living in, not for speculation”.
The meeting, which set the economic tone for 2023, also reaffirmed the country’s resolve on opening up at a higher level, including by ramping up efforts to widen market access and promote the opening-up of modern service industries.
Gary Hufbauer, a senior fellow and trade expert at the Peterson Institute for International Economics expects Chinese business activities to intensify across the border.
“There’s no evidence that China is walking away from foreign markets,” Hufbauer told China Daily. “Now that the COVID lockdowns are phasing out, I expect Chinese production and exports to pick up in 2023.”
Jan Hatzius, chief economist for Goldman Sachs, said on Wednesday that China economists at the financial institution now expect a “kind of V-shaped recovery” as has been seen in many other economies that have shut down because of COVID.
“We’re now looking for 2.6 percent, after 2.6 percent in 2022, we have 5.2 percent growth for China this year,” Hatzius said at a webinar hosted by the Atlantic Council.
He said that the sharp acceleration does not mean that the longer-term economic issues and challenges in demographics and the property market have gone away.
“I expect property activity to come down very substantially in coming decades; that’s going to be a long-lasting drag. But notwithstanding that, I think in the short term, we can see a pretty strong recovery,” he said.