China’s economic growth is expected to reach 8.5% this year, reflecting a weak base effect, the release of pent-up demand and strong exports, according to an updated forecast released by the World Bank on Tuesday.
This marks an upward revision of 0.6 percentage points from the previous December report, largely due to stronger than expected foreign demand.
“The structure of aggregate demand is expected to continue to turn towards private domestic demand,” the World Bank said. “Real consumption growth is expected to gradually return to its pre-COVID-19 trend, supported by the ongoing labor market recovery and improved consumer confidence. Investment will also remain a growth engine, but its structure is expected to shift towards private investment as manufacturing capital spending improves in response to robust external demand and stronger incomes, offsetting cooling infrastructure and real estate investment. ”
The report says the global recovery has accelerated sharply, but remains uneven. By November 2020, global merchandise trade had returned to pre-pandemic levels, while services, which had been hit hardest in 2020, also resumed but remain phased out by continuing travel restrictions.
Commodity prices saw a sharp increase in 2021, many of which are now well above their pre-pandemic levels, supported by a gradual strengthening of global demand amid various supply constraints and production disruptions. Service activity – particularly travel and tourism – remains weak, however, reflecting a general reluctance to travel.
Wider use of carbon pricing as well as increased green investment could accelerate China’s planned transition to low-carbon growth in line with its long-term goal of achieving carbon neutrality by 2060 , according to the report.
The World Bank has suggested that Chinese policymakers should redouble their efforts to promote growth-promoting structural reforms and steer the economy towards a greener, more resilient and inclusive development path.
“Focusing additional fiscal efforts on social spending and green investments rather than traditional infrastructure investments would not only help secure the recovery and support demand in the short term, but would also help rebalance the economy in the medium term. Chinese economy, ”the report says.
Sebastian Eckardt, the World Bank’s chief economist for China, said China’s monetary and fiscal policies are expected to normalize.
“Our view remains that financial support should be deployed mainly with the aim of stimulating consumption and private consumption expenditure, that is to say to further support the household sector,” Eckardt told CGTN. .
On the monetary side, Eckardt said China’s central bank has already started to normalize policy standards and manage liquidity very carefully. He also expects the political norm to revert to more neutral parameters.