The World Bank has revised its economic forecast for China to 4.3% this year, from a higher expectation of 5.1% in December, amid COVID-19 outbreaks and changes in the global environment , according to a report released Wednesday.
This downward revision came as the biggest wave of COVID-19 in two years and the resulting mobility restrictions disrupted the normalization of Chinese growth after a strong start in early 2022.
The World Bank said in the report that growth momentum is expected to rebound in the second half of the year with aggressive fiscal stimulus, monetary easing and further easing of housing sector regulations to mitigate the economic slowdown and, with that, China’s economic growth is expected to rebound to 5.2% 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 policymakers is how to make the policy stimulus effective, as long as restrictions on mobility persist,” Raiser added.
According to the report, investment growth, driven by infrastructure investment, is expected to accelerate, partly offsetting weak real consumption growth.
As external demand weakens and supply-side constraints persist, the current account surplus is expected to narrow to 1.3% of GDP in 2022. With rising food and fuel prices imports, consumer price inflation is expected to rise but remain below the government’s annual inflation target of 3%.
On the positive side, if the pandemic is brought under control and domestic restrictions are fully lifted, China’s annual growth could be higher than current forecasts, thanks to the additional stimulus measures recently announced, according to the report.
In the medium term, there is a danger that China will remain tied to the old stimulus-focused investment playbook to spur economic growth, according to the report.
“High levels of corporate and local government debt limit the effectiveness of policy easing and store other risks down the line,” said Ibrahim Chowdhury, the World Bank’s senior China economist.
The report notes that structural reforms aimed at encouraging a shift towards consumption, tackling social inequality and reviving innovation and productivity growth – including in technologies vital to China’s dual carbon goals – would contribute to achieving a more balanced, inclusive and sustainable growth trajectory for China.