China's growth path will be felt around the world

The world is facing a difficult 2023 as growth slows in most developed economies. The extent of the deceleration depends in large part on how decisively President Xi Jinping props up the Chinese economy after next week's key Party Congress.

The world's second-largest economy has had a tough year. Its top problem is a crashing property market; real estate is the country's traditional growth engine, accounting for a fifth of GDP. The danger is that the crisis will spill over into the financial sector, torpedoing investment. Meanwhile shocks stemming from Xi's regulatory crackdowns and extreme zero-Covid policy have also taken their toll. The International Monetary Fund forecasts published this week reckon China's GDP will expand by just 3.2% this year, down from 8.1% in 2021.

Yet as the developed world suffers a slowdown next year prompted by rising interest rates and higher energy costs, China offers a relative bright spot. Though the IMF has trimmed its forecasts for the country, it expects the People's Republic will grow by 4.4% in 2023. If that's accurate, using last year's nominal country GDP figures as a base, and applying the IMF's forecast 2022 and 2023 inflation-adjusted growth estimates for each, China will account for 30% of aggregate global growth next year. The world economy will expand by 2.7% in 2023, per the IMF.

China's contribution to global growth will be more than three times greater than the United States. Though America remains the world's largest economy, the IMF expects it to grow by just 1%, while the Euro area will expand at just half that rate. The top bright spot, India, isn't nearly big enough to offset much gloom. The South Asian nation produces roughly 3% of world GDP. Even if it expands by 6.1% as forecast, it will account for just 7.7% of global growth.

So, the big hope rests with Xi. After the political meeting that is likely to secure him an historic third term is out of the way, he may be able to return his focus to economic expansion. Even if China does decide to revive growth, it's far from clear that it will succeed. But the fate of exporters from Australia to South Korea and multinational consumer groups will depend to a large extent on decisions made in Beijing.

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The International Monetary Fund forecasts the global economy will grow 2.7% in 2023.