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China’s economy will now grow at a slower-than-expected pace in the years through 2023 on delayed policy easing, according to economists at Bank of America Corp.
The economists lowered their 2021 and 2022 year-on-year growth forecasts to 8.0% and 5.3%, down from 8.3% and 6.2% earlier, respectively. For 2023, the bank now sees an expansion of 5.8% from a previously expected 6.0%. It also sees more moderate inflation across the three year period.
The recent slowdown in China has been broad-based across domestic demand, according to a Tuesday research from the bank’s economists led by Helen Qiao, chief Greater China economist. The three main reasons of the latest slowdown are:
Covid delta variant outbreaks
Tight credit control on property and infrastructure investment
De-carbonization policies cutting commodity production.
The lack of a major policy response so far means the cooling in growth has been more pronounced than forecast, though government support is likely over the final quarter of this year, according to Bank of America.
“We still believe policy makers will deliver necessary easing in 4Q, as further growth slowdown in the coming months would confirm that August weakness was not a one-off event and prompt a policy reaction,” the economists wrote. “Easing measures would likely include, but are not limited to, infrastructure funding support, mortgage loan relaxation, interest rate/reserve requirement ratio cuts, and relaxation in commodity supply reduction for decarbonization goals.”
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