Lockdowns, property crisis to slow China 2022 GDP growth to 2.8% – World Bank

SINGAPORE (ICIS)–China, the world’s second-biggest economy, is projected to grow at a much slower pace of 2.8% this year compared with an earlier forecast of 5.0%, according to the World Bank, amid the country’s zero-COVID policy and ongoing property crisis.

• Heavy economic toll from COVID-19 lockdowns
• Real estate market in severe downturn
• Chinese yuan hit lowest since 2008

It represents a sharp slowdown from the 2021 growth rate of 8.1% – the fastest recorded in a decade.

The World Bank’s projected slowdown for the Asian economic powerhouse was gloomier than the 3.3% forecast by other multilateral institutions such as the International Monetary Fund (IMF) and the Asian Development Bank (ADB).

“China’s success in containing Covid-19 infections comes at a significant economic cost,” the World Bank said in its East Asia and the Pacific Economic Update report released on 27 September.

In the second quarter, China’s GDP growth slowed to 0.4% from 4.8% in the previous three months, as private consumption shrunk due to COVID-19 curbs across multiple major cities, including its financial hub Shanghai.

“The economic impact of COVID-19 is still significant in China because of the stringent local public health measures prompted by its efforts to suppress the disease,” the World Bank said.

The targeted mobility restrictions from the curbs not only depress demand, but also limit production by shutting down factories and disrupting the domestic supply chain, it said.

April industrial production shrank by 2.9% year on year, the first contraction since March 2020, while merchandise exports growth for the month in US dollar terms grew only 3.9% year on year – the slowest pace since June 2020.

In May to August, industrial production returned to growth, while overall exports increased by more than 10% on a year-on-year basis, except in August.

“China’s output is expected to grow more slowly than the output of the rest of the region in 2022, for the first time since 1990,” the World Bank said.

Furthermore, China’s real estate market is now experiencing a severe downturn, with housing activity shrinking following a temporary rebound between mid-2020 and mid-2021, it said.

“The surge in new home sales in the first half of 2021, fueled by a liquidation of holdings by developers to improve liquidity positions, was followed by a sharp contraction in new home sales,” the World Bank said.

“Housing prices have fallen, especially for second-hand housing for which average prices dropped by almost 7% between September 2021 and July 2022,” it said.

More than 30 petrochemicals and specialty chemicals are key ingredients in materials used for modern construction such as adhesives, admixtures, sealants, coatings, paints, flooring, insulation, water proofing, among others.

While improvements were seen across China’s data in August including industrial output, fixed asset investment and retail sales, the pace of recovery in production, consumption and investment remains in question for the coming months, Singapore-based UOB Global Economics & Markets Research said in a note earlier this month.

On a year-on-year basis in August, China’s industrial production growth picked up to 4.2% from July’s 3.8% expansion while retail sales strengthened by a stronger-than-expected pace of 5.4%, up from 2.7% in July.

However, real estate information provider China Real Estate Information Corp CRIC) said the top 100 developers in the country reported a combined 32.9% year-on-year decline in home sales in August.

“China continues to face challenges from its dynamic zero-COVID policy, prolonged property market weakness and expected slowdown in external demand amidst high inflation and tightening monetary policy,” UOB said.

Amid a flagging economy, China’s central bank has been cutting its key interest rates in sharp contrast with the monetary tightening of other major economies led by the US, thus, exerting strong depreciating pressure on the yuan (CNY).

The Chinese currency weakened on 28 September to CNY7.2458 to $1, the weakest level recorded since the global financial crisis in 2008.

Focus article by Nurluqman Suratman

Click here to read the Ukraine topic page, which examines the impact of the conflict on oil, gas, fertilizer and chemical markets.

Visit the ICIS Coronavirus topic page for analysis of the impact on chemical markets and links to latest news.