Fitch Ratings raised its projection for China’s GDP to grow by 5% in 2023, up from 4.1% in December. The current change is based on “evidence that consumption and activity are returning quicker than previously anticipated” after China’s government eased most of its harsh Covid restrictions, marking a shift away from its Covid-zero policy.
Fitch also cited China’s latest purchasing managers’ index (PMI) for manufacturing and services, a measure of economic activity, as indicating additional increase.
China’s official manufacturing PMI increased to 50.1 in January from 47 in December, while its services PMI increased to 54.4, the highest level since June 2022. A rating above 50 implies that economic activity is expanding; a reading below 50 suggests that economic activity is contracting.
Following the lifting of restrictions, there were massive waves of Covid epidemics across China. However, according to Fitch, it “appears to be decreasing,” citing comments from health experts and movement trends.
While many economists predict a consumption-led rebound, Union Bank of Switzerland (UBS) predicts that spending will be “conservative” owing to consumer confidence concerns.
According to its top China economist Wang Tao, the Swiss bank forecasts that China’s consumers have surplus savings of 4 trillion yuan to 4.6 trillion yuan (between $590 billion and $678 billion).
“With employment and household income still in need of recovery,” Wang’s team said in a note.
“We believe surplus savings will not be released entirely and quickly in 2023,” UBS stated.
Finally, UBS predicts that China’s household consumption growth would accelerate to 10-11% in nominal terms and 7.8% in real ones in 2023.
“Further normalization of consumer behavior and greater release of surplus resources may assist drive future consumption recovery in 2024 and beyond,” Wang added.