Leanign forward – COVID-19 and China’s reform agenda published by World Bank Group (7/2020).
„Conditions in China and the rest of the world have changed dramatically since the launch of the last China Economic Update in mid-December 2019. The COVID-19 pandemic has taken a severe human toll, caused the deepest global recession in eight decades, and inflicted enormous damage on jobs and welfare worldwide. The global economy is projected to experience a sharp contraction this year, and more than 90 percent of Emerging Market and Developing Economies (EMDEs) are expected to experience contractions in per capita incomes, with global risks firmly on the downside—despite unprecedented policy support provided by major economies.
In China, the baseline forecast envisions a sharp slowdown of growth to 1.6 percent this year, which would mark the slowest expansion since 1976. While supply-side disruptions have largely eased, weak domestic and external demand continue to restrain the pace of recovery, despite measures taken to contain the economic fallout. Private consumption is projected to remain muted as a sharp decline in household incomes, rising unemployment, and lingering behavioral impacts of the pandemic are expected to weigh on consumption, especially of services involving face-to-face contact. Private investment is expected to remain subdued, reflecting strained corporate revenues and heightened uncertainty. Demand for Chinese goods from the rest of the world is projected to remain tepid amid a deep global recession, stringent border controls, and travel bans.
Even as economic activity rebounds, the shock is likely to leave lasting impacts on the economy. The pace of poverty reduction is expected to slow, reflecting labor dislocation and slower growth in household incomes. Without additional policy measures, 8-20 million fewer people are projected to escape poverty in 2020 (based on $5.50/day 2011 Purchasing Power Parity (PPP)), compared to the pre-pandemic scenario. Self-employed workers and those in less secure, informal jobs, particularly migrant workers, are being especially hard hit. Meanwhile, debt levels—already elevated before the crisis—have increased sharply and eroded deleveraging gains made over the past two years. The fallout from the pandemic may also accelerate the secular slowdown of China’s potential growth by weakening investment and supply chains that have been an important conduit for productivity gains over the past decades.
Risks to China’s economic outlook are unusually high. On the downside, recurrent COVID-19 flareups could disrupt economic activity and dampen business and consumer sentiment to a greater extent than assumed in the baseline, despite efforts to suppress the spread of the virus. Externally, a deeper and more protracted global recession and escalating bilateral tensions between China and its key trading partners could also derail the recovery. On the upside, the slowdown could be less severe than projected in the baseline forecast if domestic and global consumer and investor confidence, boosted by effective policy measures, recover faster than anticipated, and if bilateral economic tensions ease.
While risks are exceptionally high, they can be partially mitigated by a forward-looking recovery strategy supported by good policies. The pandemic shock has exposed deeply connected economic, social, and environmental fragilities, confronting the authorities with new challenges while aggravating many preexisting ones. The recovery offers an opportunity to accelerate China’s progress in rebalancing its economy toward more inclusive, sustainable, and greener growth…“
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