China’s “sharp and uncharacteristic” economic slowdown is expected to stun growth across Asia by the end of next year, the International Monetary Fund (IMF) warned on Friday, clouding an already bleak global outlook.
The global economic outlook has clouded over this year as countries faced higher living costs, worsening financial conditions and increased uncertainty following Russia’s invasion of Ukraine.
The crises have softened the recovery from the Covid-19 pandemic, although Asia has remained a “relative bright spot” compared to other parts of the world, according to the IMF’s Regional Economic Outlook.
However, growth in the region faces headwinds from a Chinese economy weighed down by a tough zero-Covid policy and a crisis in the real estate sector, the organization said.
Earlier this month, the IMF said it had lowered its growth forecast for China to 3.2 percent in 2022, which would be the smallest expansion in the world’s second-largest economy in around four decades, excluding the first year of the pandemic.
The new report cuts Asia’s growth forecast to four percent this year, down 0.9 percentage points from an earlier forecast in April.
The organization said it expects China’s growth to accelerate to 4.4 percent next year and Asia’s to 4.3 percent, which is still “well below” the average of about 5.5 percent over the past two decades.
China’s “general” slowdown “is estimated to have important implications for the rest of Asia through trade and financial links,” according to the IMF.
It noted the region may also face other “continued” headwinds in the form of tighter global monetary policy and Moscow’s invasion of Ukraine, which has pushed commodity prices higher.
– Few infections, little growth –
“Asia’s strong economic recovery earlier this year is losing momentum with a weaker-than-expected second quarter,” said Krishna Srinivasan, director of the IMF’s Asia and Pacific Department.
Much of the growth lag “can be explained by lower post-pandemic investment,” he said, adding that many countries should act to reduce corporate debt overhang and human capital losses.
He warned that economic fragmentation, driven by geopolitical tensions and uncertainty over trade policies, “poses a significant risk to the region” and “could have adverse macroeconomic consequences in the near term.”
China is the latest major economy to commit to a zero-Covid policy that imposes immediate lockdowns, mandatory testing and lengthy quarantines to contain any outbreaks as they emerge.
Around 208 million people in the country are subject to some form of increased virus restrictions, Japanese bank Nomura estimated in a statement on Monday.
Further troubles have plagued the massive real estate sector as a number of indebted developers have defaulted on loans while others are struggling to raise cash.
Official data on Monday showed that China’s economy grew 3.9 percent year-on-year in the third quarter, a better-than-expected performance announced after Beijing delayed the release of the country’s GDP during a Communist Party congress earlier this month figures had announced.
Analysts continue to assume that the country will fall well short of its declared annual growth target of around 5.5 percent.
Investors fled Chinese stocks earlier this week after President Xi Jinping broke a longstanding precedent to seal a third term in power, fueling fears virus lockdowns and other measures damaging to the economy would continue.
