China 2023 GDP growth forecast revised up to 5.2% as activity recovers – IMF

Nurluqman Suratman

31-Jan-2023

SINGAPORE (ICIS)–China’s GDP growth is projected to rebound to 5.2% in 2023 from 3.0% last year as a sudden lifting of most its pandemic-related restrictions paved the way for a rapid rebound in economic activity, according to the World Economic Outlook (WEO) Update of the International Monetary Fund (IMF) released on Tuesday.

The 2023 growth forecast for the world’s second-biggest economy was revised up from the IMF’s previous estimate of 4.4%.

“The [zero-COVID] measures have served China very well in terms of protecting their population during the difficult times of the pandemic, but it was becoming increasingly difficult to sustain and there was a very rapid pivot towards the end of last year with the reopening of the economy,” IMF chief economist Pierre-Olivier Gourinchas said at a press conference in Singapore for the launch of the WEO update.

“That leads currently to a situation where it is in a bit of a state of flux in the first few months after the reopening but what we are seeing after that is the stabilisation of the economy, fully reopened and fully able to produce and consume … so that is a major factor behind our upward revision for China for 2023,” he said.

Fewer supply chain disruptions are also expected in China this year compared with 2022 – when lockdowns were implemented due to Beijing’s zero-COVID policy – and this will boost domestic consumption, Gourinchas told reporters.

“We’re gonna get an increase in domestic demand as Chinese households are going to be able to resume activities and start spending,” he said.

“Some estimates that we have computed in the fund suggests that for every percentage point higher growth in China, there is a spillover effect to the rest of the world that is about 0.3 percentage points,” he added.

China’s economy posted a 3.0% growth in 2022 – the first time in more than 40 years that its growth fell below the global average, according to the IMF.

Recovery could stall amid greater-than-expected economic disruptions from current or future waves of COVID-19 infections or a sharper-than-expected slowdown in the property sector, Gourinchas said.

A deepening crisis in the real estate market remains a major source of vulnerability for the economy, with risks of widespread defaults by developers and resulting financial sector instability, the IMF said in its report.

Spillovers to the rest of the world would operate primarily through lower demand and potentially renewed supply chain problems.

“There are other forces at play when we look at the Chinese economy for instance the property sector is still showing signs of weakness,” Gourinchas said.

“The property sector…. was one of the important components of growth in [the] past [but] will not be as much of an engine of growth until there’s been some cleaning up in the sector. This is something that is weighing on economic activity in China,” he said.

The country’s economic growth is projected to decelerate to 4.5% in 2024 before settling at below 4% “over the medium term amid declining business dynamism and slow progress on structural reforms”, the IMF said.

“We are seeing signs that the Chinese economy might not be growing at the same rate in the coming years after this rebound [in 2023],” Gourinchas said.

The reopening boosts GDP growth in China and globally “through the demand that the Chinese households may have for foreign goods or services and tourism, but it can also put upward pressure on commodity prices and that will reverberate in the current environment”, he said.

“On balance, our assessment is that the net of these two will be a factor that will be conducive to more growth and will not necessarily lead to an acceleration of inflation coming from commodity prices,” Gourinchas said, adding that the IMF forecasts commodity prices to decline this year.

Oil prices are expected to fall by around 16.2% year on year in 2023, according to IMF projections.

Thumbnail photo: Pierre-Olivier Gourinchas, chief economist and director at IMF’s research department, speaking at a press conference in Singapore. (Source: IMF)

Focus article by Nurluqman Suratman

Thumbnail photo: Pierre-Olivier Gourinchas, chief economist and director at IMF’s research department, speaking at a press conference in Singapore. (Source: IMF)

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