The resurgence of the pandemic and financial vulnerabilities in China pose a risk to the world economy, indicates the Dutch Central Bank (DNB).
New waves of infections and strict confinement measures are slowing economic growth in China: industrial production fell in April for the first time in two years by 2.9% (year-on-year) and Chinese consumers seem more cautious.
In addition, the economic outlook has worsened due to the war in Ukraine and high inflation.
In recent months, the strong economic recovery from the Covid-19 pandemic has slowed in many countries.
So the picture is uncertain and depends on the course of the war in Ukraine.
Following a strong recovery of the world economy in 2021, with growth of 6.1%, the IMF lowered its growth projections for 2022 by 0.8 percentage points in April. The world economy is now expected to grow 3.6% this year.
In China, retail sales fell for the second consecutive month by 11.1 and 3.5% in April and March respectively (year-on-year).
While Chinese stock prices have fallen due to deteriorating investor confidence, persistent problems in the real estate sector are also depressing economic growth, as evidenced by, among other things, falling house prices, the high levels of debt and the lower number of transactions.
According to the DNB, China’s growth estimates for the coming years, around 5%, are significantly below the long-term average.
The slowdown is increasing vulnerabilities, particularly for emerging markets with close economic and financial ties to China, but also poses a risk to the global economy.
Supply chains have been further disrupted by slowing activity in the Chinese economy, exacerbating shortages for growers around the world.
China is also a major supplier and customer in the energy and raw material markets.
Worldwide, the pandemic is yet to arrive and low-income countries and emerging economies are, from a DNB perspective, particularly vulnerable to rising funding costs.
Ukraine’s own economy has been hardest hit by the war and the DNB expects it to contract by 35%: economic activity has stalled in much of the country, infrastructure and other capital has been damaged or destroyed, and many residents have fled the country.
Likewise, the bank projected that the Russian economy will contract by an expected 8.5% this year, mainly as a result of the sanctions.