Virendra Pandit
New Delhi: The surest sign of what China, the world’s second-largest economy, may face in 2023, came from the World Bank on Tuesday when it slashed its 2022 China growth forecast predicted in June at 4.3 percent to 2.7 percent now.
Various reports have suggested that China could be overwhelmed with a million deaths and around 800 million infections in 2023, or the world’s 10 percent population, as its health system and the economy crashes in the face of unprecedented disruptions.
In a report released Tuesday, the World Bank forecasted the Covid-19 pandemic and weaknesses in the Chinese property sector would hit China adversely, the media reported.
In its report, “Navigating Uncertainty, China’s Economy in 2023”, the global lender said that confronted with the most widespread outbreaks since the beginning of the pandemic in early 2020, the continued evolution of China’s public health policies will be crucial, both to mitigate public health risks but also to minimize further economic disruption.
Youth unemployment in China has risen, because of both the short-term and structural factors. It rose disproportionately during the pandemic, standing at almost 18 percent in October this year, the World Bank said.
The government’s policy response has largely relied on short-term support and could be complemented with more structural measures. To ease the adverse impact of the pandemic on the labor market, policymakers introduced employment subsidies and public works programs.
The report said international experience suggested that these measures could be effective in supporting labor demand during downturns. Still, they were costly and typically generate small long-term impacts.
It said uneven recoveries have followed Covid-19 outbreaks and growth slowdowns. After a downturn caused by outbreaks and stringent public health measures in April and May, economic activity picked up in the third quarter as the cases again receded.
The World Bank said growth in the third quarter (Q3) of 2022 was broad-based across demand components. Consumption contributed 2.1 percentage points year-on-year to the third quarter (Q3), up from 0.8 percentage points in the first half (H1), because of an increase in household disposable income. It said manufacturing investment on the back of robust export performance and stimulus-led infrastructure investment supported growth, while real estate investment continued to contract.
Domestic demand remains below potential, as recurrent Covid-19 outbreaks and related restrictions continue to weigh on consumer and investor confidence. On the demand side, both consumption and investment growth remained below pre-pandemic levels amid high Covid-related uncertainty. Recurring mobility restrictions, precautionary saving, and a negative wealth effect from the housing slump have held back services consumption.
On the production side, the industry expanded at a faster pace than services. The industrial sector contributed 1.9 percentage points to third-quarter growth, up from 1.2 percentage points in the first half of the year, according to the report.
The World Bank said China’s export growth momentum has slowed in recent months of weaker external demand. Although exports recovered swiftly from the severe Covid-related disruptions earlier in the year as supply chains normalized, export momentum slowed in the second half of the year against the backdrop of weaker global demand.
Import growth remained sluggish throughout the year, owing to subdued domestic demand. Imports expanded by only 3.5 percent in US dollar terms in the first 10 months of 2022, down from 31.4 percent in the same period last year.
According to the report, excluding price effects, imports in volume terms contracted, reflecting weak domestic demand amid recurrent Covid-19 outbreaks and ongoing stress in the real estate sector.