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28 Mar, 2023 06:00

Upbeat economic outlook issued for China

S&P Global Ratings forecasts 5.5% GDP growth this year
Upbeat economic outlook issued for China

China’s economy will grow this year, exceeding Beijing’s official projections and supporting wider Asia-Pacific expansion, S&P Global Ratings said in its outlook, which was issued on Sunday.

The agency forecasts a “largely organic recovery” in the world’s second-largest economy in 2023, led by consumption and services.

“Our growth forecast of 5.5% exceeds the country’s modest target of ‘around 5%.’ In our view, Beijing set that target at a relatively unambitious level to provide room for policy to respond to inflation or financial risks, if needed,” S&P stated.

The report indicated that after the sudden removal of Covid-19 restrictions, China quickly moved on from the pandemic, with mobility rising fast and confidence up. Better momentum in industrial production, investment, and especially in retail sales in the first two months confirmed the recovery, the ratings agency said.

Conditions in the housing sector have reportedly brightened, with sales improving and prices stabilizing in early 2023. The agency wrote that it does not expect a V-shaped recovery, but that a turnaround in such an important sector would help sustain growth and reduce downside risks.

Infrastructure investment growth should ease this year as policymakers aim to contain local public debt, the report said. “Weak export prospects and supply chain adjustments will weigh on corporate investment. Nonetheless, following the initial bounce-back, growth should become more broad-based. Investment and industrial activity will make a meaningful contribution,” S&P wrote.

At the same time, the report highlighted the “two-way risks” to China’s growth outlook for 2023 and 2024, warning that after the initial bounce-back, the recovery may lose steam due to potential setbacks such as housing or labor market weakness.

According to S&P, other Asia-Pacific economies should slow but not stumble on weaker global growth, the receding of the benefits from domestic re-opening, and the impact of higher interest rates.

“We maintain our cautiously optimistic outlook for Asia-Pacific. China’s economy is on track to recover this year. For other economies this will dampen but not offset the hit of slower growth in the US and Europe, the fading impact of domestic re-opening post the pandemic, and higher interest rates,” the agency wrote.

S&P expects the region, excluding China, to grow at 3.8% in 2023, after 4.7% growth in 2022. “In most economies, inflation should decline, although elevated core inflation will prod some central banks to raise rates further. External pressure from rising US interest rates will likely push some others to lift rates further too.”

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