The World Bank has sharply slashed its annual growth forecast for China, saying in a report yesterday that COVID-19 disruptions could further slow recovery in the world’s second-largest economy.
China is the last major economy wedded to a “zero COVID” policy, using rapid lockdowns, mass testing and strict movement restrictions to eliminate outbreaks, but it has tangled supply chains and dragged economic indicators to their lowest levels in about two years.
Growth in China is projected to slow to 4.3 percent this year, marking a steep 0.8 percentage-point drop from its forecast in December last year, the World Bank said in the report.
Photo: EPA-EFE
This “largely reflects the economic damage caused by Omicron outbreaks and the prolonged lockdowns in parts of China from March to May,” the report said, referring to the highly transmissible variant of SARS-CoV-2.
In those months, restrictions on dozens of cities including the manufacturing hubs of Shenzhen and Shanghai, as well as the breadbasket province of Jilin, battered business operations and kept consumers at home.
“In the short term, China faces the dual challenge of balancing COVID-19 mitigation with supporting economic growth,” World Bank country director for China, Mongolia and South Korea Martin Raiser said.
“The dilemma ... is how to make the policy stimulus effective, as long as mobility restrictions persist,” Raiser said.
Activity is expected to rebound in the latter half of this year, helped by fiscal stimulus and more easing of housing rules, the World Bank said.
However, domestic demand would likely recover gradually and only partly offset earlier damage related to the COVID-19 pandemic, it said.
The World Bank’s forecast adjustment came as concerns grow that China might not meet its official growth target of about 5.5 percent this year.
Chinese Premier Li Keqiang (李克強) has said that the challenges today are in some ways “greater than when the pandemic hit” in 2020, and the government has rolled out a series of measures to try and jump-start the economy.
The Chinese government has also launched a major infrastructure push this year, but the World Bank said that this was a precarious path.
“There is a danger that China remains tied to the old playbook of boosting growth through debt-financed infrastructure and real estate investment,” it said. “Such a growth model is ultimately unsustainable and the indebtedness of many corporates and local governments is already too high.”
The latest forecast also assumed that China’s “zero COVID” policy would be “maintained in the short term to avoid stressing its health care system,” meaning the possibility of recurrent disruptions.
The World Bank has also cut its global growth forecast to 2.9 percent, 1.2 percentage points below the January forecast, saying the world economy risks falling into a harmful period of 1970s-style “stagflation” in the wake of the Russian invasion of Ukraine.
“The risk from stagflation is considerable with potentially destabilizing consequences for low and middle-income economies,” World Bank president David Malpass told reporters. “For many countries recession will be hard to avoid.”
If risks to the outlook materialize, global growth could slow even more sharply — triggering a worldwide recession, Malpass said.
The report cut the US growth estimate by 1.2 points to 2.5 percent, while the eurozone forecast was cut to 2.5 percent, and Japan to 1.7 percent.
Russia’s economy is expected to contract by 11.3 percent this year.
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