In a forecast published Wednesday, Fitch ratings revised its forecast of China, predicting the Chinese economy will outperform expectations, growing 5% this year.
Fitch raised the growth forecast for the second-largest economy from December’s expectations of 4.1% on “evidence that consumption and activity are recovering faster than initially anticipated” now that Beijing has abandoned its stringent Covid-19 restrictions.
This forecast comes after Beijing’s underperformance last year, as the nation’s GDP rose only 3% due to the severe lockdowns imposed by Beijing. In contrast, Fitch expects strong economic activity in the first half of 2023, as the nations makes a “swift rebound” from the pandemic.
Fitch’s economists wrote 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 latest Purchasing Managers’ Index (PMI) for China, which measures business activity for manufacturing and services, also rose aggressively, indicating a wave of approaching economic growth.
Manufacturing PMI for China increased to 50.1 in January, up from the previous reading of 47. Services PMI rose to 54.4, which was the highest reading seen since June of 2022. Values above 50 indicate expansions of economic activity, and readings below 50 indicate contractions.
UBS has predicted China’s consumption would increase moderately, while spending will be “cautious” due to remaining weakness in consumer confidence.
Wang Tao, the chief China economist for the investment bank, said in a note, “With employment and household income still in need of recovery, consumer confidence may not recover completely but instead remain cautious.”
China’s households are estimated to be sitting on excess savings of 4 trillion to 4.6 trillion yuan ($590 billion to $678 billion), however UBS notes these savings may not be spent this year.
Wang added, “Further normalization of consumer behavior and more release of excess savings could help underpin future consumption recovery in 2024 and beyond.”
UBS predicts in 2023, household consumption growth would increase 10-11% in nominal terms and 7.8% in real terms.
