China’s growth forecasts were slashed by the World Bank on Tuesday, as they were predicted to fall behind their Asia-Pacific neighbours for the first time since 1990.
China is set for GDP growth of 2.8% for 2022, the bank said, with the Asia-Pacific region predicted to grow 5.3% on average.
“China has lost momentum,” said the World Bank’s biannual report. “It has continued its zero-Covid approach, using mass testing and targeted mobility restrictions to contain outbreaks of the disease.”
Covid lockdowns in Shanghai in April reduced exports, impacted retail sales, curbed industrial production and sparked a decline in the Purchasing Manager Index (PMI), the report showed.
“These restrictions disrupt supply chains, industrial and services production, domestic sales and exports,” the report went on.
Further measures were imposed last month, with 21 million citizens in southwestern Chengdu locked down for at least two weeks.
Real Estate Turmoil
Debt distress after the pandemic and rising interest rates has put pressure on all Asian government finances and threatens to weaken currencies further, the World Bank warned.
“China’s real estate sector turmoil is an example of pre-existing difficulties that are accentuated by financial tightening, though the direct exposure of systemically important banks to property sector loans is limited,” it said.
The country’s property sector makes up a quarter of its GDP, with home prices, sales and investment all slumping further in August.
A major economic leadership reshuffle is expected at China’s twice-a-decade Party Congress in October, with policy veteran Li Keqiang due to step down as manager of the economy and banking regulator Lui He also due to retire.
- By Alfie Habershon