Source: Asian Development Bank | 15 September 2020

Gross domestic product (GDP) in the People’s Republic of China (PRC) is forecast to grow 1.8% this year as the economy continues to feel the brunt of the coronavirus disease (COVID-19) pandemic—both domestically and externally, according to a new report by the Asian Development Bank (ADB).

The 2020 forecast in ADB’s Asian Development Outlook (ADO) 2020 Update is down from the April forecast of 2.3% in ADO 2020 but is retained from its June forecast in ADO 2020 Supplement. ADB forecasts growth in the region’s largest economy of 7.7% in 2021, an increase of 0.4 percentage points from the April forecast, and 0.3 percentage points from the June forecast, with expected recoveries in domestic consumption and external trade.

“Strong monetary and fiscal policy support helped the PRC economy rebound from a deep contraction in the first quarter of 2020 to post growth of 3.2% in the second quarter,” said ADB Chief Economist Yasuyuki Sawada. “To return to a sustainable growth path, it is vital for the PRC to focus on and implement policies that support and promote the continuous recovery of key economic sectors and industries post-COVID-19.”

Economic performance in the first half of 2020 was hit hard as consumption, exports, services, and retail sales all contracted, with only investment contributing to growth. Risks to the PRC outlook include the protracted trade conflict with the United States, mounting credit risk for banks, and intensifying fiscal revenue pressure on local governments.

Investment, which contributed 1.5 percentage points to the PRC’s growth in the first half of 2020, is expected to be the main growth driver for the rest of the year, with infrastructure investment to maintain momentum supported by ongoing local government special bond issues. Consumption is expected to recover gradually this year and regain its role as the PRC’s main growth driver in 2021. Recovery in services, meanwhile, will be subdued for the rest of 2020 as household demand and the labor market are yet to normalize. Manufacturing and external trade are forecast to remain lackluster for the rest of 2020.

The labor market is expected to improve following pressure from COVID-19 mobility restrictions and lessened economic activities. Labor market expansion slowed in the first 7 months of 2020, creating 1.96 million fewer new urban jobs compared to the same period last year. The country’s current account surplus is forecast to widen to 1.5% of GDP this year, before moderating to 1.3% in 2021.

Consumer price inflation is forecast to average 3.0% in 2020, lower than ADB’s April forecast of 3.6%, as consumer demand recovers slowly. Normalizing pork prices toward the end of the year will ease inflation in 2021 to 1.8%. Fiscal policy is expected to stay supportive for the rest of 2020, while monetary policy is likely to stay accommodative this year but without much further easing.

ADB is committed to achieving a prosperous, inclusive, resilient, and sustainable Asia and the Pacific, while sustaining its efforts to eradicate extreme poverty. Established in 1966, it is owned by 68 members—49 from the region.