Roving Periscope: At 2.8%, China to be the slowest Asian economy in 2023
Virendra Pandit
New Delhi: Amid widespread and persisting speculations in the last few days about political instability in China and the fate of President Xi Jinping himself, the World Bank said the second largest global economy will lag the rest of Asia in 2022 for the first time since 1990.
According to the World Bank’s forecast, this is primarily because of Xi Jinping’s zero-Covid policy and the crisis in the property sector, the media reported on Tuesday.
The weaker forecast was due mainly to a sharp slowdown in China, caused by its strict zero-Covid rules that disrupted industrial production, domestic sales, and exports.
China, which makes up 86 percent of the 23-country East Asia and the Pacific region’s economic output, was projected to grow 2.8 percent this year, a noteworthy deceleration from the Bank’s previous forecast of 5.0 percent. In 2021, China’s economy expanded by 8.1 percent, its best growth in a decade.
For 2023, the world’s second-largest economy was seen growing at 4.5%. As against 8.1 percent in FY21, the Bank had estimated China’s growth rate to drop between 4 and 5 percent in FY22. Now it has further downgraded the GDP growth forecast to 2.8 percent for FY23.
In contrast, the rating agencies increased the growth projections for Asia (excluding China) to 5.3 percent in FY23 on the back of a rebound in domestic consumption. Last year, it grew at 2.6 percent.
The Chinese government also lowered its growth projection to 5.5 percent for FY22. The outlook has deteriorated considerably in the last six months.
The zero-Covid policy restricted mobility and consumer activity in China, whose property sector, which accounts for about 30 percent of the total GDP, has also been shaky for the last couple of years. Big property developers like Evergrande defaulted on their debt repayments and failed to meet their commitments to homebuyers.
With China likely to continue the strict lockdowns across the country beyond 2022, other rating agencies like Nomura and Goldman Sachs have also slashed their outlook on the country’s growth.
The World Bank said the Chinese government must provide more liquidity support to the property sector to deliver projects on time. The crisis represents a “deeper” problem.
Other countries in Asia have seen their growth rates improve. India, Indonesia, Vietnam, and the Philippines have lifted the lockdown restrictions, and consumer demand has risen.
While the Chinese central bank slashed its key interest rate from 3.7 percent to 3.65 percent in August, the central banks in other Asian countries started raising their interest rates.
The Washington-based global lender said the economic growth in Asia and the Pacific will weaken sharply in 2022 because of China’s slowdown, but the pace of expansion will pick up next year.
In its latest report, it expected the 2022 growth in the East Asia and Pacific region, including China, to slow to 3.2 percent, down from its 5 percent forecast in April, and the previous year’s growth of 7.2 percent.
“As they prepare for slowing global growth, countries should address domestic policy distortions that are an impediment to longer-term development,” said World Bank East Asia and Pacific Vice President Manuela Ferro in a statement.
Another risk to the region’s outlook was aggressive interest rate hikes that central banks across the world are undertaking to combat soaring inflation. These have caused capital outflows and currency depreciations.
The multilateral aid agency cautioned policymakers on imposing price controls by subsidies, warning these measures would only benefit the wealthy and draw government spending away from infrastructure, health and education.
“Controls and subsidies muddy price signals and hurt productivity,” World Bank East Asia and Pacific Economist Aaditya Mattoo, said in a statement.
