The World Bank has sharply slashed its annual growth forecast for China, warning in a report that Covid 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 around two years.
Growth in China is projected to slow to 4.3 per cent in 2022, the World Bank said in a report, marking a steep 0.8 percentage-point drop from the December forecast.
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 the coronavirus.
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. The dilemma… is how to make the policy stimulus effective, as long as mobility restrictions persist.” Martin Raiser, the World Bank country director for China, Mongolia and Korea.
Activity is expected to rebound in the latter half of 2022, helped by fiscal stimulus and more easing of housing rules, the World Bank said.
But domestic demand will likely recover gradually and only partly offset the earlier pandemic-related damage.
The World Bank’s forecast adjustment came as concerns grow that China may not meet its official growth target of around 5.5 per cent this year.