China’s economists optimistic despite threats of a global recession

Despite the International Monetary Fund’s warning that global growth is to further weaken in 2023, economists in China are confident the country’s economy can make a strong recovery in the year ahead.

Economic activity has shown signs of picking up in China as the country attempts to transition from its Covid-19 restrictions, despite tighter financial conditions and ongoing geopolitical tensions.

Data from late December showed that 6,316 domestic flights took off on Boxing Day, almost double the number the month before, while cinema box office takings rose to 106.17 million yuan ($15.39 million), up from 14.47 million yuan a month earlier, according to market tracker Wind Info.

Economists say the rebound will be underpinned by three key factors — an increase in domestic consumption due to reduced Covid-19 disruptions; improving confidence in the property and private sectors; and the macro-economic policies being rolled out by the government.

Kristina Hooper, chief global market strategist at Invesco, said Covid-19 containment measures could “help propel China to be a key growth engine in 2023”.

December’s Central Economic Work Conference “prioritized increasing domestic demand by boosting consumption to promote economic growth amid pressure from demand contraction, supply shocks and weakening expectations”, according the China Daily website.

It said the meeting “stressed the need for better coordination of epidemic prevention and control measures with economic and social development, and called for efforts to optimize response to the epidemic”.

Consume spending to bounce back

Officials at the conference said consumer spending is set to bounce back, as reduced disruption from Covid-19 is expected to release pent-up demand, which will be seen after the first quarter and be a key driver for economic recovery this year.

Yin Yanlin, deputy director of the office of the Central Committee for Financial and Economic Affairs, said: “The worst moment is over. With the implementation of optimized Covid-19 containment measures, [China will see] a smoother flow of people and logistics, and accelerated recovery in business and social activities.”

The World Bank said in its latest China Economic Update that consumer confidence is expected to improve as pent-up demand is released after the first quarter.

Hu Yifan, regional chief investment officer and head of macroeconomics for Asia-Pacific at UBS Global Wealth Management, said the firm was forecasting that China’s year-on-year retail sales growth will increase from about 1% in 2022 to at least 5% this year as economic activity returns to normal from Covid-19 and creates more purchasing from physical outlets rather than online.

This rebound in consumer spending could contribute to more than half of China’s economic growth this year, which could rise to about 5% year-on-year, up from about 3% last year, Hu said.

“Investment growth is expected to remain robust this year thanks to infrastructure construction supported by high-speed railway projects, manufacturing investment driven by high-tech sectors, and a narrower slide in real estate development investment,” Hu said.

She said this recovery in domestic demand will likely help offset downward economic pressure from slowing exports as global demand weakens.

Data from the National Bureau of Statistics (NBS) show that China’s exports rose by 11.9% year-on-year to 21.83 trillion yuan from January to November, but growth for the month of November alone fell to 0.9% as global growth slowed.

The NBS said the situation underscored the significance of increasing policy support from the government to ensure a rebound in domestic demand, especially as some consumers  still face hurdles such as rising unemployment.

The NBS said China’s surveyed urban jobless rate stood at 5.7% in November, up by 0.2 percentage points from October. The rate among those in the 16 to 24 age group was 17.1%.