China to grow less than the rest of Asia for the first time since 1990

The World Bank (WB) has downgraded its Gross Domestic Product growth forecast for the world’s second-largest economy to 2.8% from 8.1% last year. Why?

China is no longer Asia’s growth engine because of its ‘zero Covid-19’ policy to face the worst outbreaks of the virus in two years, according to the World Bank’s latest update.

After decades of booming Asia-Pacific growth, the strict policy to keep Covid-19 at bay and other circumstances will see China grow below the region’s average for the first time since 1990: 2.8% compared to the 5.3% for the region.

The data was revealed in a WB report, which downgraded China’s GDP growth forecast to 2.8%, a huge contrast to the 8.1% recorded in 2021, and even less optimistic than the April forecast of between 4% and 5%.

China also brought down regional expansion for 2022 from the 5% projected in April to the current 3.2%. Excluding China, however, East Asia, Southeast Asia and the Pacific Islands will achieve 5.3% growth.

In China, everything started to trend towards the negative from the second quarter onwards as a result of strict confinements, such as those ordered by the authorities in the eastern megalopolis of Shanghai, which led to an economic shutdown.

One example of this was the changes in GDP, which went from growing by 4.8 % year-on-year in the first quarter to only 0.4 % in the second quarter, a contraction of 2.6 % quarter-on-quarter.

Another of the factors cited in the WB report is the “weakness” of the real estate sector, affected by the limitations imposed by Beijing to try to contain the growing debt problem of many developers, which for years accumulated liabilities by financing themselves via leverage.

Moody’s rating agency forecasts that the low demand could continue over the next 12 months.

Author: Jorge Hurtado

Original Post