In the "World Bank China Economic Update - December 2022", the international lender reduced its GDP forecast for China for the next year.

Key takeaways

“Activity in China has followed the ups and downs of the pandemic—outbreaks and economic slowdowns have been followed by uneven recoveries.”

“Despite policy support, real GDP growth is expected to slow to 2.7 percent in 2022, before recovering to 4.3 percent in 2023 amid a reopening of the economy.”

“The growth outlook is subject to significant risks. Recurrent COVID-19 outbreaks, the possibility of renewed mobility restrictions and precautionary behavior to slow the spread of the virus could lead to longer-than-expected disruption in economic activity. Persistent stress in the real estate sector could also have wider macroeconomic and financial spillovers.”

“China’s economy is also vulnerable to climate change, highly uncertain world growth prospects, greater-than-expected tightening in global financial conditions and heightened geopolitical tensions.”

“Continued macroeconomic policy support will be needed in the near term, as the economy remains below potential and the global environment is weakening. China has adequate fiscal policy space, especially at the central level, that could be deployed to bolster a stronger recovery.”

Market reaction

Despite the grim outlook, AUD/USD remains unfazed and holds lower ground near 0.6700, losing 0.10% on the day.