China’s economic growth slowed sharply towards the end of 2021. Despite subsequent stimulus efforts this winter, this year’s growth trend will be determined by the major covid outbreak and strict efforts all over China to suppress the outbreak. Recent worsening of the covid situation has complicated government attempts at reviving growth and strikes hard at an already struggling real estate sector. As a result, we now expect considerably lower economic growth this year than indicated in earlier forecasts, while 2023 growth is bolstered by rebound in consumption demand and the stimulus efforts in the second half of this year. Uncertainty related to the covid outbreak and government policy to control it are substantial. A prolonged covid wave could easily lead to even weaker growth than expected. However, if the situation quickly improves with infection rates brought under control or adoption of covid policies similar to those of other countries dealing with current virus variants, the economic damage could be mitigated. Moreover, real estate developers’ woes will continue to deepen, which might spill over more widely to the financial sector. The economic outlook would also be altered by further deterioration of relations with the West depressing growth, or conversely, a rapprochement with the West that boosts growth.
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Senior Economist Juuso Kaaresvirta
tel. +358 9 183 2107 / juuso.kaaresvirta(at)bof.fi
Head of BOFIT Iikka Korhonen
tel. +358 9 183 2272 / iikka.korhonen(at)bof.fi