(Bangkok) China’s economy will slow next year, with annual growth falling to 4.5% from 5.2% this year, despite a recent recovery driven by investment in factories and construction and demand for services, the World Bank predicted in a report released Thursday.
The report said the recovery of the world’s second-largest economy from setbacks caused by the COVID-19 pandemic, among other shocks, remains “fragile”, due to weakness in the real estate sector and global demand for Chinese exports, high debt levels and wavering consumer confidence.
The estimate that growth would be around 5% this year, then fall in coming months, is consistent with other forecasts. According to the World Bank, growth is expected to slow further in 2025, from 4.5% next year to 4.3%.
The economy has yo-yoed in recent years, with growth ranging from 2.2% in 2020 to 8.4% in 2021 and 3% last year. Strict limits on travel and other activities during the pandemic have hit manufacturing and transportation. Job losses from these disruptions and a crackdown on the tech sector, combined with a slowdown in the real estate industry, have led many Chinese to tighten their purse strings.
Most of the jobs created during China’s recovery are low-skilled, low-paid service sector jobs. The Chinese are also cautious because of fragile social safety nets and a rapidly aging population, which places the burden of providing for elders on younger generations.
“The outlook is subject to considerable downside risks,” the report said, adding that a prolonged downturn in the real estate sector would have broader ramifications and further strain local governments’ already strained finances, while slowing demand world poses a risk for manufacturers.
The report highlights the need for China to pursue broad structural reforms and says steps by the central government to shoulder the burden of supporting cash-strapped local governments would also help improve confidence in the economy.
Chinese leaders addressed the issues at their annual central economic conference earlier this week, which set priorities for the coming year, but state media did not elaborate on what policies to implement. artwork.
Investment in real estate has fallen 18% over the past two years and more needs to be done to resolve the hundreds of billions of dollars in unpaid debts by overindebted real estate developers, the report said.
The report indicates that the value of new home sales fell 5% between January and October compared to the previous year, while new home starts fell by more than 25%. The slowdown has been sharpest in smaller cities, which account for about 80% of the market in this country of 1.4 billion people.
Some of this weakness has been offset by significant investment in the manufacturing sector, particularly in areas such as electric vehicles, batteries and other renewable energy technologies, as well as in areas of strategic importance such as as microchips, which enjoy significant government support.
But to maintain strong growth, China needs a recovery in consumer spending, which fell during the COVID-19 omicron wave and has remained below normal since late 2021, the report said .
He notes that gains from increased construction investment in a country that already has a large number of modern roads, ports, railways and housing projects ― as well as massive overcapacity in cement, steel and many other manufacturing sectors ― will give the economy a smaller boost than could be achieved through increased consumer spending.