China’s economic output will lag behind the rest of Asia for the first time since 1990, according to a new World Bank forecast that highlights the damage done by President Xi Jinping’s non-proliferation policies and the collapse of the world’s largest property market.
The World Bank revised its forecast for gross domestic product growth in the world’s second largest economy down to 2.8 percent, compared to 8.1 percent last year, and from its forecast in April between 4 and 5 percent for this year.
At the same time, the outlook for the rest of East Asia and the Pacific has improved. area, except for Chinais expected to grow 5.3 percent in 2022, up from 2.6 percent last year, thanks to higher commodity prices and a rebound in domestic consumption after the coronavirus pandemic.
China, which has been leading the recovery from the epidemic, has largely ignored the delta region [Covid variant] The difficulties are now paying the economic cost of containing the disease in its most contagious form, Aditya Mattu, the World Bank’s chief economist for East Asia and the Pacific, told the Financial Times.
China had set a GDP target of around 5.5 percent this year, the lowest level in three decades. But the outlook has deteriorated significantly over the past six months.
Xi’s policy of relentlessly suppressing the coronavirus outbreak through sudden shutdowns and mass testing has restricted mobility and drained consumer activity just as much as China. real estate sector – which accounts for about 30 percent of economic activity – is experiencing a historic meltdown.
The Washington-based group’s latest forecast follows a string of financial institutions, including Goldman Sachs and Nomura, which have lowered their forecasts for next year. Rising pessimism rests on expectations that Xi will do so Extending his Covid-free policy after 2022.
Many economists and analysts expected Beijing to dramatically increase stimulus measures in response to weak economic growth, accelerate easing measures to boost consumption and help stem the housing market downturn.
However, Matto said that while China has “enormous ammunition to provide a strong stimulus,” Beijing appears to have concluded that fiscal stimulus will be “weakened” by zero-Covid restrictions.
The data comes against the backdrop of broader concerns that Xi – who is set to secure an unprecedented third term as leader of the Chinese Communist Party next month – is eroding the economic dynamism that began under Deng Xiaoping’s reform era.
The World Bank also expressed concern that the real estate slowdown is a deep “structural” problem. To reduce the risk of immediate contagion from the real estate sector “disruption”, the bank said Beijing needs to Provide more liquidity Supporting troubled developers and financial guarantees to complete the project. However, in the longer term, fiscal reforms are needed to give local governments sources of revenue beyond land sales, including property tax.
By contrast, economies in East Asia and the Pacific, particularly the export-led economies of Southeast Asia, are expected to grow faster and have lower inflation in 2022.
In Indonesia, Thailand and Malaysia, government fuel subsidies have helped keep inflation low by global standards. Domestic consumption has surged as the region abandons lockdowns and tougher approaches to managing the pandemic.
At the same time, soaring commodity prices brought on by the global energy crisis have boosted the region’s export-dependent economies. Indonesia, a major coal exporter, last week disclosed those exports It brought in a record $27.9 billion in August.
Some central banks, including in Indonesia, Vietnam and the Philippines, have started raising interest rates.
However, the region has been under less pressure than other parts of the world, Matto said. “I think the gradual tightening we’re seeing…could continue for some time.”
However, the bank warned that some measures such as food and fuel subsidies could become a drag on growth by the end of the year. According to the report, price controls distort the market, often helping wealthy and large corporations while increasing public debt.
There are already signs of stress. Mongolia and Laos have high debt levels – large shares of which are denominated in foreign currencies – and are vulnerable to global inflation and subsequent exchange rate depreciation.
“I would say that at this point, this is something to watch, not a serious concern,” Matto said.