World Bank raises China's GDP forecast but warns of looming challenges

In December 2023, China announced an increase in its estimated GDP for 2023, raising it by about 2.7% to 129.4 trillion yuan ($17.7 trillion). This revision came as a result of an economic census that takes place once every five years. Earlier in the year, the government had projected GDP at 126.06 trillion yuan. This adjustment is seen against the backdrop of China's efforts to recover from the economic disruptions caused by the COVID-19 pandemic and a significant downturn in the housing market that followed increased scrutiny on property developers' borrowing practices. Despite the improvement in GDP estimates, the government maintained its growth forecast at around 5% for 2023. It was reported that the economy was growing at a rate of 5.2% annually, an increase from the 3% growth witnessed in 2022. Such measures are in response to challenges like subdued consumer spending and investment, largely owing to a struggling property sector. It is crucial for the government to address these factors to ensure continued recovery. The World Bank also updated its growth forecasts for China, raising its expectations for 2024 and 2025. The new forecast suggested a growth of 4.9% for 2023, up from an earlier prediction of 4.8%. However, the outlook remained cautious, with predictions indicating growth slowing in subsequent years due to ongoing property market pressures and weak consumer confidence. The 2026 forecast shows growth slowing to 4%. These forecasts emphasize the significance of managing the property crisis and supporting consumer spending to avoid deeper economic challenges. Furthermore, low inflation levels were noted, suggesting that despite some recovery measures, affordability and consumer expenditure remained a concern for economic stability. Plans to issue a record 3 trillion yuan ($411 billion) in special treasury bonds have been laid out for the coming year to stimulate recovery. Although these efforts may provide temporary relief, the World Bank has highlighted the necessity for structural reforms to ensure sustainable growth moving forward. As the global economic landscape remains uncertain, the potential impact of U.S. trade policies, such as increased tariffs, poses an additional risk to China's economic ambitions, underscoring the need for a balanced approach to both immediate support and long-term reforms.