China’s economic growth forecast for 2023 has been revised by Fitch Ratings from 4.1 per cent to 5.0 per cent. The decision reflects evidence that consumption and activity are recovering faster than initially anticipated after the authorities moved away from their ‘dynamic zero COVID-19’ policy stance in late 2022 while the large wave of COVID-19 infections appears to subside.

Many high-frequency indicators remain below pre-pandemic norms, but have recently rebounded in sequential terms. The swift rebound from the COVID shockwave means that activity in the first half of 2023 (1H23) will be stronger than forecasted earlier. Real gross domestic product (GDP) growth was also higher in the fourth quarter of 2022 (4Q22) compared to the last forecast, Fitch Ratings said in a press release.

Economic recovery is expected to be primarily consumption-led, as households re-engage in activities previously hampered by health controls. Consumption contributed a mere 1 percentage point (pp) to GDP growth last year, compared with a pre-pandemic average of around 4pp.

Despite the forecast upgrade, economic rebound in 2023 is projected to be less vigorous than that in 2021, when China’s economy posted GDP growth of 8.4 per cent.

The lagged effects of policy support for growth are likely to be modest. There were only two small cuts to banks’ required reserve ratios and policy interest rates in 2022. In line with this, credit growth remains lacklustre, with Fitch-adjusted aggregate financing to the real economy slowing to 9.4 per cent in December 2022, from 10.8 per cent in June 2022.

Fitch forecasts a budget deficit of around 7 per cent of GDP in 2023, down from an estimated 8 per cent in 2022. This will still be well above its pre-pandemic trend.

Fibre2Fashion News Desk (NB)

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