World Bank calls China ‘fragile’, downgrades growth in new forecast

The World Bank's December 2023 China update titled 'Which Way Forward? Navigating China's Post-Pandemic Growth Path’ has been released.

In it, the World Bank revised China’s expected growth for 2024 down significantly, from 5.2 percent in 2023 to 4.5 percent in 2024.

This was perhaps surprising, as the report itself noted that China’s economy seems to have well and truly reopened for business after the pandemic which brought it to its knees, with rebounding manufacturing, infrastructure and services sectors.  

Secular trends show up

The World Bank said on December 14th that:

Economic activity in China has picked up in 2023, driven by increased demand for services, resilient manufacturing investment, and public infrastructure stimulus. However, the economic performance has been marked by volatility, ongoing deflationary pressures, and still weak consumer confidence. These factors indicate that the recovery remains fragile... The outlook is clouded by continued weakness in the real estate sector and persistently tepid global demand in the short term, as well as structural constraints to growth, including high debt levels, population ageing, and slower productivity growth than in the past."

These factors represent a coming home to roost several long-term, secular trends, such as China's ageing workforce and ongoing troubles with its real estate market bubble having popped and left depressed property prices in its wake.

Also, it's worth noting that, unlike the United States, the World Bank notes that China has limited scope for easing interest rates.

No end to slowdown in sight

Unfortunately for China, the World Bank's report suggests that there's no near-term solution to these long-brewing problems, which are likely to get worse before they get better.

The economic outlook faces significant risks. The property sector downturn may extend beyond initial expectations, impacting consumer sentiment and spending. This, in turn, could put pressure on suppliers, creditors, and local government revenue, and lead to a decrease in public investment. Additionally, the economy is vulnerable to softer global demand and increased geo-economic tensions. Climate change and the rising frequency of extreme weather events also pose a downside risk."

The CNY/USD pair

The CNY/USD has had not a great 2023 as it stands, seeming to echo the World Bank's sentiments. So far, the Chinese yuan was down more than three percent to the dollar this year, with the USD/CNY trading at 7.1505 at one point on December 14th, despite some rebounds during the course of the year.

Read more: USD/CNY prices plummet as copper and iron prices rise

However, according to Reuters, some analysts are predicting a rebound in the second half of 2024. Whether or not something like this will affect the World Bank's outlook on China, especially with such long-term factors affecting their decision in the first place, remains to be seen.