The World Bank in a report released on Tuesday slashed its 2022 China growth forecast to 2.7 per cent, from 4.3 per cent predicted in June, as the pandemic and weaknesses in the property sector hit the world's second-largest economy.
In a report, Navigating Uncertainty, China's Economy in 2023, by World Bank, the lender said that confronted with the most widespread outbreaks since the beginning of the pandemic, the continued evolution of China's public health policies will be crucial, both to mitigate public health risks but also to minimise further economic disruption.
Youth unemployment in China has risen, due to both short-term and structural factors. Youth unemployment rose disproportionately during the pandemic, standing at almost 18 per cent in October this year, according to the World Bank report which was released on Tuesday.
The government's policy response has largely relied on short-term support and could be complemented with more structural measures. To ease the adverse impact of the pandemic on the labour market, policymakers introduced employment subsidies and public works programmes.
The World Bank report said international experience suggested that these measures could be effective in supporting labour demand during downturns, but they tended to be costly and typically generate small long-term impacts.
It said Covid-19 outbreaks and growth slowdowns have been followed by uneven recoveries. After a downturn caused by outbreaks and stringent public health measures in April and May, economic activity picked up in the third quarter as the cases again receded, according to the report.
The World Bank said growth in the third quarter (Q3) of 2022 was broad-based across demand components. Consumption contributed 2.1 percentage points year-on-year to third quarter (Q3), up from 0.8 percentage points in the first half (H1), thanks to an increase in household disposable income.
It said manufacturing investment on the back of a robust export performance and stimulus-led infrastructure investment supported growth, while real estate investment continued to contract.
The report said domestic demand remains below potential, as recurrent Covid-19 outbreaks and related restrictions continue to weigh on consumer and investor confidence.
On the demand side, both consumption and investment growth remained below pre-pandemic levels amid high Covid-related uncertainty, the report said. Recurring mobility restrictions, precautionary saving, and a negative wealth effect from the housing slump have held back services consumption.
On the production side, industry expanded at a faster pace than services. The industrial sector contributed 1.9 percentage points to third-quarter growth, up from 1.2 percentage points in the first half of the year, according to the report.
The World Bank said China's export growth momentum has slowed in recent months on weaker external demand. Although exports recovered swiftly from the severe Covid-related disruptions earlier in the year as supply chains normalised, export momentum started to slow in the second half of the year against the backdrop of weaker global demand.
Import growth remained sluggish throughout the year, owing to subdued domestic demand, the World Bank report said. Imports expanded by only 3.5 per cent in US dollar terms in the first 10 months of 2022, down from 31.4 per cent in the same period last year.
According to the report, excluding price effects, imports in volume terms contracted, reflecting weak domestic demand amid recurrent Covid-19 outbreaks and ongoing stress in the real estate sector.
