China’s economy will expand by 5% in 2023, says the rating agency “Fitch Ratings” in an improved forecast from the previous forecast for growth of 4.1% made in December. The latest update is based on “evidence that consumption and activity are recovering faster than initially expected” after the Chinese government lifted most of the strict corona restrictions, signaling a move away from its “zero-corona” policy.
Fitch also pointed to China’s latest Purchasing Managers’ Index (PMI) for manufacturing and services, a measure of business activity, which pointed to further growth. China’s official manufacturing PMI rose to 50.1 in January from the previous figure of 47. China’s services PMI rose to 54.4, the highest level since June 2022. A value above 50 indicates expansion of economic activity; while a figure below 50 indicates a contraction.
Large waves of corona outbreaks occurred across China after the authorities lifted the restrictions. But Fitch indicated that “corona appears to be subsiding,” citing commentary from health officials and mobility trends. “The rapid rebound from the shock wave of the corona virus means that activity will be stronger than we predicted,” said a team of economists. “We believe that stabilizing the recovery will remain the key focus in the near term, but do not anticipate aggressive macro policy easing,” they wrote as they looked ahead to the National People’s Congress scheduled to be held in March. Economists also noted that China’s December gross domestic product figure was better than Fitch had expected.
While many economists expect a consumption-led recovery, UBS adds that spending will be quite “cautious” due to pressure on consumer confidence. The Swiss bank estimates that households in China have a total of 4-4.6 trillion yuan worth of excess savings (between 590-678 billion dollars). “With employment and household income still in need of recovery, consumer confidence may not fully recover but remain stable,” the bank said. “We think that excess savings will not be released completely and very quickly in 2023,” the bank said. Ultimately, UBS expects China’s household consumption growth to jump to 10-11% in nominal terms and 7.8% in real terms in 2023. “Further normalization of consumer behavior and further release of excess savings could help underpin future consumption recovery in 2024 and beyond.”
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