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Tuesday, December 5, 2023

Fitch Revises Up Projection of China’s 2023 Economic Expansion to 5%, Up from 4.1%

BusinessChina DataFitch Revises Up Projection of China's 2023 Economic Expansion to 5%, Up from 4.1%
  • According to Fitch Ratings, the outlook for China’s economic growth in 2023 is optimistic, with a projected growth rate of 5%, a significant improvement from its prior estimate of 4.1%.
  • UBS predicts that the aggregate amount of surplus savings held by households in China is estimated to be between 4 to 4.6 trillion yuan ($590 billion to $678 billion).

On Wednesday, Fitch Ratings revised its forecast for China’s economic growth in 2023, now projecting an expansion of 5%. This marks an improvement from the previous prediction of 4.1% made in December.

The reason for the revision, according to Fitch, is the “evidence of a faster-than-expected recovery in consumption and activity” following the lifting of many of China’s strict Covid restrictions. This shift away from the country’s “Covid-zero” policy has opened the door for increased economic activity.

Fitch also highlighted the positive signals from China’s latest purchasing managers’ index (PMI) for manufacturing and services, a key gauge of business activity, which points to continued growth. It’s a promising outlook for China’s economy in the coming year.

China’s official purchasing managers’ index (PMI) for manufacturing climbed to 50.1 in January, up from a previous reading of 47, while its services PMI rose to 54.4, reaching its highest level since June 2022. It’s worth noting that a PMI reading above 50 signals expansion in economic activity, while a reading below 50 indicates contraction.

The country has recently seen significant outbreaks of Covid-19 after restrictions were lifted, but Fitch has noted that the situation “appears to be subsiding.” This observation is based on statements from health officials and trends in mobility. These developments point to a potentially positive outlook for China’s economy in the coming months.

A team of economists led by Brian Coulton has stated that the rapid rebound from the impact of the Covid-19 pandemic means that activity in the first half of 2023 will be stronger than previously forecast. The economists noted that stabilizing the recovery will continue to be the key focus in the near term, but do not anticipate a significant easing of macro-policy measures.

The economists also observed that China’s gross domestic product reading in December was better than what Fitch had anticipated. While many economists predict a consumption-led recovery, UBS cautions that spending may be more reserved due to strains in consumer confidence. UBS estimates that China’s households have a total of excess savings worth between 4 trillion yuan to 4.6 trillion yuan ($590 billion to $678 billion), according to its chief China economist, Wang Tao.

Wang’s team notes that with employment and household income still in need of recovery, consumer confidence may not fully recover and remain cautious. UBS believes that these excess savings may not be fully released in 2023. However, the bank still expects China’s household consumption growth to reach 10-11% in nominal terms and 7.8% in real terms in 2023. Wang adds that further normalization of consumer behavior and the release of more excess savings could help support a future consumption recovery in 2024 and beyond.

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