Bank of Korea: "Difficult for China's Economy to Rebound in V-Shape... Possibility of Long-Term L-Shape Recession"

[Image source=Yonhap News]

[Asia Economy Reporter Seo So-jeong] An analysis has emerged suggesting that it will be difficult for the Chinese economy to rebound in a 'V-shaped' manner like in 2020, and if lockdown measures are strengthened, there is a possibility of a prolonged 'L-shaped' recession.

The China Economy Team of the Bank of Korea's Research Department stated in the report titled "Assessing the Possibility of a V-shaped Recovery of the Chinese Economy" on the 17th, "This year, due to the spread of COVID-19 variants and reduced policy capacity, a V-shaped rebound is unlikely, and a gradual 'U-shaped' recovery is expected."

The Bank of Korea added, "If the resurgence of COVID-19 is properly controlled, the Chinese economy is expected to show a gradual U-shaped recovery in the second half of the year," and "Given the limited policy capacity, the Chinese government is likely to implement measures such as issuing special government bonds, lowering the reserve requirement ratio, and expanding re-lending."

Previously, the Chinese government issued special government bonds three times: in 1998 (270 billion yuan), 2007 (1.55 trillion yuan), and 2020 (in response to COVID-19, 1 trillion yuan).

Recently, major global investment banks (IBs) have also consecutively lowered their growth forecasts for the Chinese economy, evaluating the possibility of a V-shaped recovery as low. Nomura Securities lowered its growth forecast from 3.9% to 3.3%, UBS from 4.2% to 3.0%, and Bank of America from 4.2% to 3.5%.

Unlike in 2020, prolonged zero-COVID policies have increased economic uncertainty, and the real estate market downturn is causing sluggish sales of related durable goods and construction materials for households, raising concerns about hindering economic recovery. Additionally, government stimulus measures are considered insufficient to offset the downward pressure on the economy caused by the COVID-19 shock and the real estate market slump.

The Bank of Korea emphasized, "It is necessary to be cautious about the possibility of an L-shaped prolonged recession if lockdown measures are reinforced again due to the emergence of new COVID-19 variants."

This content was produced with the assistance of AI translation services.