China: Covid Still A Major Issue, Says World Bank, Slashes GDP Growth Projections

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Zinger Key Points
  • The World Bank has several suggestions aimed at helping the Chinese Government navigate its GDP crisis.
  • Further investments in supporting employment opportunities for the country’s Gen-Z cohort is one option.

China’s ongoing struggles with Covid are bringing instability to the country’s economic outlook.

A massive wave of protests has led the ruling Communist Party to dial down on its strict “zero-covid” policies, opening the gateway to a new potential public health crisis.

But severe Covid policies are already taking a toll on China’s growth.

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According to a recent economic update by the World Bank, China’s real GDP growth is expected to slow to a staggering 2.7% for 2022. While that could be considered a normal growth rate for most countries, it’s a shock for the Asian giant whose GDP growth has averaged 9% since 1989, making it the world’s second-largest economy.

Just one month ago, the International Monetary Fund was expecting the country’s GDP growth for 2022 to stand at 3.2%.

Reopening the economy should take China's GDP up to 4.3% in 2023, according to the World Bank.

Still, “recurrent COVID-19 outbreaks, the possibility of renewed mobility restrictions and precautionary behavior to slow the spread of the virus could lead to longer-than-expected disruption in economic activity,” reads the report from the Washington D.C.-based organization.

But the pandemic is not the only threat to China’s economic potential.

Stress in the country’s real estate market can also spill over into wider macroeconomic and financial trouble. The housing market has been crisis-ridden for years and many analysts believe that real estate could be the key piece that lifts or sinks the Chinese economy in the years to come.

“China’s economy is also vulnerable to climate change, highly uncertain world growth prospects, greater-than-expected tightening in global financial conditions and heightened geopolitical tensions,” reads the report.

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What Should China Do?

The World Bank has several suggestions aimed at helping the Chinese Government navigate its GDP crisis.

  • Directing public spending towards social impact and green projects, “rather than traditional infrastructure” would support short-term demand and contribute to more inclusive and sustainable medium-term growth.
  • Leveling the playing field for the private sector “​​by ensuring a predictable regulatory environment and addressing distortions in the access to credit” could help the country achieve a more balanced, inclusive, and sustainable growth.
  • Further investments in supporting employment opportunities for the country’s Gen-Z cohort “would strengthen the skillset of the youth, improve labor market mobility, address information asymmetries, and strengthen labor market statistics.”

Photo by Jida Li on Unsplash.

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Posted In: AsiaMacro Economic EventsNewsGlobalEconomicsMarketsReal EstateChinaCovid-19World Bank
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