In its Asian Development Outlook (ADO) 2021, ADB’s flagship annual economic publication, ADB projects PRC’s economic growth to surge by 8.1% in 2021 from 2.3% in 2020, before returning to trend and growing by 5.5% in 2022.
“Powered by strong exports and gradual recovery in household consumption, the economy continues to come back robustly despite pandemic uncertainty,” said ADB Country Director for the PRC Yolanda Fernandez Lommen. “The recovery will be driven by improvement in the job market, restored consumer confidence, and the release of pent-up household demand.”
Investment was the predominant driver of growth in 2020, contributing 2.2 percentage points. In line with strong export performance in the second half of 2020, manufacturing investment picked up notably in the fourth quarter of 2020. Growth in real estate investment rebounded in the second quarter and remained solid for the balance of the year, growing by 7.0% in response to strong housing demand.
As the economy recovers, consumption should regain its position as the primary contributor to growth in 2021 and 2022, followed by investment and net exports. The contribution of net exports is expected to increase temporarily in 2021 before retreating in 2022.
Growth in services will likely continue to recover in 2021 despite uncertainty surrounding the pandemic. Hospitality, recreation, and tourism will profit from the rollout of COVID-19 vaccinations. Meanwhile, financial services may experience slower loan growth as banks see more restrictions on mortgages and other property-related loans. The current account balance is forecast to stay in surplus as it moderates in 2022. The authorities in PRC should help banks address their nonperforming loans to mitigate systemic risk, the report says.
Inflation is projected to decline in 2021, reflecting pork price deflation while household demand is still recovering, and then pick up in 2022. Consumer price inflation will slow from an average of 2.9% in 2019 to 1.5% in 2021. Inflation was driven by an increase in food prices, with African swine fever pushing pork prices nearly two-thirds higher on average than in 2019.
Despite COVID-19, the PRC attracted more foreign direct investment (FDI) in 2020 than a year earlier. Net FDI increased from the equivalent of 0.4% of GDP in 2019 to 0.7% in 2020 as inflow outgrew outflow. The recovery in domestic demand and solid export performance in the second half of 2020 helped FDI inflow pick up from a low base.
