BOFIT Forecast for China 2021–2023 / 2

Abstract

Stimulus spending on the corporate sector and fixed investment, together with a strong export performance, have helped China recover rapidly from a pandemic-induced slowdown in the first half of 2020. While rapid recovery and last year’s low basis assure high on-year GDP growth figure this year, the speedy phase of economic recovery is over and lower growth lies ahead. China is struggling with a shrinking working-age population and high levels of debt that hinder deployment of capital to other uses. Moreover, there has been little progress in productivity enhancing reforms. While higher-than-expected growth is possible if consumer demand strengthens markedly, the risk of below-forecast growth has also increased during the pandemic. Growth could be severely impacted if debt becomes unsustainable, financial market disruptions generate uncertainty that spreads to the real economy or foreign relations hit an impasse.