Bank of Korea Forecasts China's Economic Growth Rate in Mid-3% Range This Year

'V-shaped' Recovery Like 2020 Difficult
Exports Struggle to Drive China Economy
Faster Vaccine Rollout Could Speed Up Economic Normalization

Citizens are walking on Nanjing East Road, the largest downtown area in Shanghai, China. [Image source=Yonhap News]

China's economy is expected to record a growth rate in the mid-3% range this year due to a slowdown in consumption and employment recovery, as well as export setbacks.

The Bank of Korea's Beijing office stated in its publication 'Overseas Economic Focus' on the 31st, in the report titled 'China Economic Outlook and Key Issues for the Second Half of 2022,' that "China's economy is projected to grow in the mid-4% range in the second half of the year and in the mid-3% range for the full year."

The Bank of Korea expects that although the Chinese economy will improve in the second half following the second quarter, which was the low point due to the resurgence of COVID-19 and stringent quarantine measures, the recovery in consumption and employment will be slow, and the possibility of export slowdown is emerging, making a rapid 'V-shaped' recovery like in 2020 unlikely.

According to the Bank of Korea, with COVID-19 quarantine measures lasting more than two years, employment has worsened mainly in the service sector, small and micro enterprises, and low-income groups, while the improvement in residents' income has deteriorated, significantly reducing consumption capacity.

Additionally, although central and local governments are introducing policies to stabilize the real estate market, such as lowering mortgage interest rates and easing housing purchase restrictions, the decline in real estate investment continues due to deteriorating investment sentiment.

In particular, with the sharp rise in raw material prices and policy rate hikes by major countries weakening global growth, overseas demand has slowed, making it difficult for exports to drive China's economic growth.

The Bank of Korea explained, "Exports are expected to increase by only single digits in the second half of this year due to weakened external demand from economic slowdowns in major countries, rising raw material prices caused by the prolonged Ukraine crisis, and the effect of a high base."

However, the weaker yuan exchange rate compared to last year and the possibility that the United States may further reduce tariffs on China to counter inflation could act as positive factors for exports.

The Bank of Korea forecasted that China's consumer price index (CPI) will show an increase in the mid-2% range annually, driven not only by supply-side factors such as rising raw material prices but also by demand-side factors due to an expanded domestic economic recovery in the second half.

Given the increased downside risks to the economy due to expanding uncertainties in domestic and external conditions, Chinese authorities are expected to actively implement fiscal and monetary policies to strengthen support for the real economy to stimulate growth.

The Bank of Korea stated, "The market expects that China's mRNA vaccines and therapeutics could be released as early as the second half of the year," adding, "If the distribution of vaccines and therapeutics accelerates and the emergency medical system stabilizes, the Chinese government will be able to focus more on normalizing economic activities."

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