Eyes on Asia: China announces slow GDP growth
2022 has not been a great year for global economies. Most economies are facing rampant inflation and the war in Ukraine has made the situation even worse. In Asia, the world’s second-largest economy, China, expanded by a mere 0.4% in the second quarter of the year, official data showed on Friday, 15th July. This was credited to lockdowns across the country, dubbed Beijing’s “dynamic zero COVID” strategy, that stifled industrial production and consumer spending.
This was the slowest growth rate since the start of the COVID pandemic. The Asia Development Banks (ADB) went on to slash its economic forecast for Asia’s developing economies, where China and India are included, to 4.6% in 2022 and 5.2% in 2023. This was according to data released on Thursday, 14th July by ABD in their report on the latest economic outlook.
However, it was not all doom and gloom as industrial output and retail sales were both reported to make strong rebounds from previous lulls.
In this article, we analyze in detail the economic state of two Asian economies, China and India, and their regional neighbors.
Performance in the Second Quarter
In the second quarter of the year, the world’s second-largest economy recorded its worst quarterly performance since 2020, during the COVID pandemic when the GDP contracted by 6.8%. Strict COVID lockdowns wreaked havoc in the country with an enormous drop in industrial production.
The GDP of China just grew 0.4% in the second quarter of the year, according to the National Bureau of Statistics (NBS). Compared to the first quarter of the year, the growth rate was sharply lower. In the quarter ending March, the Chinese GDP grew by 4.8%. This was also lower than the 1% growth estimates by economists in a Reuters poll.
In the first six months of the year, China’s economy expanded by a mere 2.5%. This is way below the annual target set by the government of 5.5%, leading to a drop in Beijing’s optimism about reaching the goal.
Predicted growth in the coming months
The ADB reviewed its initial forecast of 5% growth for China’s GDP to 4% in 2022, quoting concerns over the country’s “zero COVID” approach that involves strict lockdowns.
In its flagship report, the “Asian Development Outlook” released on Thursday, the ADB said these lockdowns have deepened the crisis in an already battered real estate sector reeling from a high level of debts and mortgage defaults. ADB said China’s continued “adherence to a zero-COVID strategy in response to renewed outbreaks early in 2022 has triggered the return of strict lockdowns.”
In addition to the strict lockdowns, the report mentioned that factors including the ongoing war in Ukraine, the tightening of monetary policies by Central Banks, and disruption of global supply chains were among the reasons for the lowered forecast.
Current economic performance
Like other global economies, India too has been affected by high rates of retail inflation. The Asian economic powerhouse has its current retail inflation, which is measured by the consumer price index (CPI) at about 7% and is expected to remain elevated in the coming months.
In an aim to tame this inflation, The RBI’s monetary policy committee hiked the repo rate by 90 basis points in two consecutive months, May (an off-cycle policy review) and June, raising the repo rate to 4.9%.
The Rupee’s performance has also been shaky, with the currency touching its all-time low against the US dollar, at 80.06 on Wednesday. For the year, the currency has so far depreciated by about 7.5% against the US Dollar.
Predicted growth in the coming months
On Thursday 21st July, industry body FICCI lowered its forecast on India’s economic growth from 7.4% to 7% for the year. FICCI’s July Economic Outlook Reports quoted current geopolitical uncertainties for the drop in growth predictions.
The report also expects the RBI to raise its policy rate all the way to 5.65% by the end of the fiscal year from the current policy rate of 4.9%. The survey has projected annual median GDP growth for 2022-23 at 7%, with a minimum and maximum growth estimate of 6.5% and 7.3%, respectively. For agriculture and allied activities, the median growth forecast was set at 3% for 2022-2023 while industry and service sectors are anticipated to grow by 6.2% and 7.8%, respectively, during the fiscal year.
Asia’s regional growth forecast
Downgrading its 2022 forecast for the third time, the Asia Development Banks (ADB) went on to slash its economic forecast for Asia’s developing economies, where China and India are included, to 4.6% in 2022 and 5.2% in 2023.
The growth outlook for the sub-regions was however not identical, with Southeast Asia, Central Asia, and the Pacific expected to grow faster than initially projected. However, for South Asia, the economies are expected to expand slowly due to the crisis in Sri Lanka and high inflation in India.
The ADB chopped its growth forecast for South Asia to 6.5% from 7.0% this year and to 7.1% from 7.4% in 2023.