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Analysts are upgrading their growth forecasts for China’s economy, after the easing of COVID restrictions that hit the country less than expected and as business activity quickens its pace.
Experts and investment banks across the board have revised upward their predictions for the world’s second-largest economy this year, with most seeing expansion well into the 5% range.
Fitch Ratings was the latest to raise its estimate, saying Wednesday it expected China’s GDP to grow 5.0% in 2023, significantly more than its previous estimate of 4.1%, citing faster-than-anticipated recovery in consumption and factory activity.
Last week, Chinese authorities reported leaps well above analysts’ expectations for January’s consumption and production gauges, putting both into expansion territory after a painful December contraction.
“We believe the economic recovery will be primarily consumption-led, as households re-engage in activities previously hampered by health controls,” Fitch economists wrote in a note Wednesday.
Fitch cautioned that China’s recovery this year would be smaller than in 2021, when the economy jumped 8.4% after the taming of the initial COVID outbreak.
Fitch said that drags on the Chinese economy this year, if there are any, would come from a weak property market and depressed export demand stemming from economic slowdowns in the U.S. and Europe.
Other financial firms were even more bullish on China’s 2023 prospects. Analysts at Goldman Sachs and Bank of America both recently raised their forecasts to 5.5%. Morgan Stanley’s latest estimate foresees 5.7% growth.
JPMorgan economists said Friday that the first and second quarters should expand at or above 7%, slowing to 5.5% and 6.1% in the third and fourth quarters, respectively. Full-year growth would therefore be at least 5.6%, said Haibin Zhu, the investment bank’s chief China economist.
“The transitional pain is much shorter than previously expected,” Zhu wrote in a note Friday.
Societe Generale economist Michelle Lam was the most optimistic among major analysts, raising the Paris-based financial firm’s forecast for China to 5.8% from 5.3%.
She said not only do Chinese households have existing savings they would be ready to spend, but that the labor market — particularly in the consumer-services sector — would see recovery that would in turn stimulate spending.
Putting the forecasts into perspective, the International Monetary Fund said that if China expanded at an expected 5.2% this year, it would be more than three times faster than its 1.4% forecast for the United States.
Growth in China and India will account for 50% of global growth in 2023, which will slow from 3.4% in 2022 to 2.9% this year, the IMF said last week.
Multiple factors were shaping its outlook. “On the downside, Russia’s war in Ukraine and the global fight against inflation. On the upside, the reopening of China’s economy. Overall, we have a mild upward revision to our projections,” it said in a report.
The increased optimism has been much welcomed in China, where the economy stumbled more last year than most observers expected. The official government growth rate of 3% for 2022 fell far short of its target of 5.5%, and was one of its worst performances since China began market reforms in the 1980s.
Moreover, the coming growth spurt may be fleeting. After notching more than 5% this year, China’s economy will slow to 4.5% in 2024, “before settling at below 4% over the medium term amid declining business dynamism and slow progress on structural reforms,” the IMF said.
Alongside the multiple revisions to China’s expected growth this year, stocks have mostly been on a tear. The large-cap CSI 300 Index
000300,
last week hit a gain of 20% from November’s trough, while Hong Kong’s Hang Seng Index
HSI,
) touched an 11-year high.
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