The World Bank warned in a report Wednesday that the Covid turmoil could further delay the recovery of the world’s second-largest economy, significantly lowering China’s annual growth forecast.
China is the last major economy to stick to the Zero-COVID policy, using rapid blockades, mass testing and strict movement restrictions to eliminate outbreaks, but entwining the supply chain and economic indicators in about two years. Reduced to the lowest level.
The World Bank forecasts China’s growth to slow to 4.3% in 2022, a 0.8 percentage point drop from its December forecast, in a report Wednesday.
This “greatly reflects the economic damage caused by the outbreak of Omicron and the long-term blockade in parts of China from March to May,” the report said in a highly infectious mutation in the coronavirus. Mentioned the body.
At that time, regulations on dozens of cities, including manufacturing bases in Shenzhen and Shanghai and the breadbasket Jillin, destroyed business operations and kept consumers home.
“In the short term, China faces the dual challenge of balancing Covid-19 easing and supporting economic growth,” said Martin Razor, World Bank’s Country Director for China, Mongolia and South Korea. Says.
“The dilemma is … a way to make policy stimuli effective as long as mobility restrictions continue.”
According to the World Bank, fiscal stimulus and deregulation of housing are expected to restore activity in the second half of 2022.
However, he added that domestic demand is likely to recover gradually, only partially offsetting previous pandemic-related damage.
– “Old Playbook” –
The World Bank’s forecast adjustments were made due to growing concern that China may not be able to meet its official growth target of about 5.5% this year.
Prime Minister Li Keqiang warned that today’s challenges are, in a sense, “greater than when a pandemic occurred” in 2020, and the government has taken steps to revitalize the economy.
The Chinese government has also begun promoting large-scale infrastructure this year, but the World Bank has warned that this is an unstable path.
“China is at risk of remaining bound by old guidance to boost growth through debt-financed infrastructure and real estate investment,” he said Wednesday.
“Such a growth model is ultimately unsustainable, and the debt of many businesses and local governments is already too high.”
The latest forecasts assume that China’s Zero-COVID policy will be “maintained in the short term to avoid stress on the health system,” which means the possibility of recurrent turmoil.
The World Bank has also lowered its global growth forecast to 2.9%, warning that the global economy is at risk of falling into a harmful period of 1970s-style “stagflation” following Russia’s invasion of Ukraine.