China’s economy will expand by 5% in 2023, Fitch Ratings said in a revised forecast on Wednesday – an improved outlook from its previous 4.1% growth prediction made in December.
The latest revision is based on “evidence that consumption and activity are recovering faster than initially anticipated” after China’s government removed most of its stringent Covid restrictions, signaling a move away from its Covid-zero policy.
Fitch also pointed to China’s latest purchasing managers’ index (PMI) for manufacturing and services, a measure of business activity, that indicated further growth.
China’s official manufacturing PMI reading rose to 50.1 in January from a previous reading of 47, and its services PMI rose to 54.4, the highest level since June 2022. A value above 50 indicates expansion of economic activity; a reading below 50 points to a contraction.
There were large waves of Covid outbreaks across China after authorities lifted measures. But Fitch pointed out it “appears to be subsiding,” citing commentary from from health officials and mobility trends.
“The swift rebound from the Covid shock-wave means that activity in 1H23 will be stronger than we had forecast,” a team of economists led by Brian Coulton said in a release.
“We believe stabilizing the recovery will remain the key focus in the near term, but do not anticipate aggressive macro-policy easing,” the economists wrote, looking ahead to the National People’s Congress slated to take place in March.
The economists also noted China’s gross domestic product reading in December was better than Fitch had expected.
While many economists foresee a consumption-led recovery, UBS adds that spending will be rather “cautious” due to strains in consumer confidence.
The Swiss bank estimates that China’s households have a total of excess savings worth 4 trillion yuan to 4.6 trillion yuan (between $590 billion to $678 billion), according to its chief China economist Wang Tao.
“With employment and household income still in need of recovery, consumer confidence may not recover completely but instead remain cautious,” Wang’s team said in a note.
“We think excess savings may not be released completely and very fast in 2023,” UBS 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 more release of excess savings could help underpin future consumption recovery in 2024 and beyond,” said Wang.