IMF upbeat on Chinese growth
Fund’s GDP forecast raised on optimized COVID response, while economic activity points to robust recovery
The International Monetary Fund has raised its forecast for China’s economic growth to 5.2 percent for 2023, up 0.8 percentage points from a previous projection made in October, saying the country’s optimization of COVID-19 response has paved the way for a faster-than-expected recovery.
In an upside scenario, growth is expected to pick up in China after the relaxation of pandemic restrictions in November and December, the IMF said in its World Economic Outlook Update released on Jan 31.
Pent-up demand also could fuel a stronger rebound in China, according to the report, titled “Inflation Peaking amid Low Growth”.
“The restrictions and COVID-19 outbreaks in China dampened activity last year. With the economy now reopened, we see growth rebounding to 5.2 percent this year as activity and mobility recover,” Pierre-Olivier Gourinchas, the IMF’s chief economist, wrote in a blog-post.
“All the indications are that we are witnessing a rapid reopening of the economy,” he said separately at a press conference at the launch of the IMF report in Singapore on Jan 31. The eased restrictions will also have an impact on the supply side.
“Also we’re going to get an increase in domestic demand as Chinese households are going to be able to resume activities and start spending,” he said. “We’re going to see that in a number of dimensions, including, for instance, tourism. That’s going to be an engine that will benefit other countries as well.”
Gourinchas said that based on estimates computed at the IMF, for every percentage point higher growth in China there is a spillover effect to the rest of the world of about 0.3 percentage points, which he said is “quite significant”.
The spillover effect is stronger for countries that are closer trade partners of China, he added.
The 2023 GDP forecast is almost 1 percentage point higher than projected by IMF’s sister agency, the World Bank, which predicted on Jan 10 that China’s economy will grow by 4.3 percent this year, and then rise by 5 percent in 2024.
The IMF, however, expects China’s growth to fall to 4.5 percent in 2024.
On the downside, severe health outcomes in China could hold back the recovery, so accelerating COVID-19 vaccinations in China would safeguard the recovery, with positive cross-border spillovers, the IMF said.
In addition, a sharper-than-expected slowdown in the property sector could also stall China’s recovery, Gourinchas noted.
The IMF said that globally, the rise in central bank rates to fight inflation and the conflict in Ukraine continue to weigh on economic activity. Global inflation is expected to fall from 8.8 percent in 2022 to 6.6 percent in 2023, and further decline to 4.3 percent in 2024 — but still above pre-pandemic levels of about 3.5 percent.
It noted that world economic growth will slow from 3.4 percent in 2022 to 2.9 percent in 2023, then rebound to 3.1 percent in 2024.
The anticipated growth for 2023 is 0.2 percentage points higher than predicted in the October 2022 World Economic Outlook.
That growth will remain weak by historical standards, as the world economy grew by 3.8 percent on average between 2000 and 2019, the IMF said.
For advanced economies, the slowdown will be more pronounced, with nine out of 10 advanced economies likely decelerating, according to Gourinchas.
Growth in the United States will slow to 1.4 percent in 2023 as the Federal Reserve’s interest-rate hikes work their way through the economy. And growth is expected to bottom out at 0.7 percent this year in the eurozone, where conditions are more challenging despite signs of resilience to the energy crisis, a mild winter and generous fiscal support.
Gourinchas noted that India and China will account for half of global growth this year, versus just a 10th for the US and the eurozone combined.
In the report, the IMF warned of the risk of growing forces of geopolitical fragmentation, as the conflict in Ukraine and the related international sanctions split the world economy into blocs and reinforce earlier geopolitical tensions, such as those associated with the US-China trade dispute.
“We must buttress multilateral cooperation, especially on fundamental areas of common interest such as
international trade, expanding the global financial safety net, public health preparedness and the climate transition,” Gourinchas wrote.
Meanwhile, a leading United Nations economist agreed that China can play a significant role in stimulating global growth this year.
Hamid Rashid, chief of the Global Economic Monitoring Branch at the UN Department of Economic and Social Affairs, said on Jan 25 that the past year was rough but in 2023 China “can play a very important role in stimulating global growth”.
Speaking after the release of the “World Economic Situation and Prospects 2023” report by his department, Rashid said, “I think all the ingredients for recovery are there. We are very optimistic about the recovery in China.”
Rashid, the report’s lead author, expressed confidence that China’s economy will experience a “robust recovery” as its policies are aligned correctly, meaning that fiscal policy and monetary policies are “in the right direction”.
China’s economy is well placed to grow because its inflation has been low, despite high inflation elsewhere, he said.
The global financial crisis in 2008 transformed China into the engine
of the global economy, Rashid said, and restoring the country’s role as an engine is good news for many other developing countries.
World Economic Situation and Prospects 2023 paints a gloomy picture of the global economy and warns that multiple and intersecting crises are likely to exacerbate things, with growth set to slow from 3 percent last year to 1.9 percent this year.
Rashid emphasized the need to invest in productive capacity, promote human capital and combat climate change, adding that by making these investments the world will “come out of this difficult time” as they will have “high multiplier effects”, leading to higher growth and reducing inflation.
“China has done it very well over the years” because the government “can actually steer the recovery”, he said.
The Chinese economy will be on a trajectory of “not only recovery, but sustained recovery” if the pandemic can be controlled, Rashid said.
Official Chinese data released on Jan 31 showed that the nation’s economic activity, including manufacturing and services, expanded for the first time in four months in January, as domestic demand picked up on the back of optimized COVID-19 measures and supportive policies for steady growth.
The purchasing managers’ index for China’s manufacturing sector bounced back to 50.1 in January, after reaching 47 in December, according to the National Bureau of Statistics. The 50-point mark separates contraction from growth.
The non-manufacturing PMI came in at 54.4 in January, up from 41.6 in December.
The country’s official composite PMI, which includes both manufacturing and services activities, stood at 52.9, compared with 42.6 in December, according to the NBS.
Analysts said the rapid expansion of economic activity signals that prospects for economic recovery are improving. Thanks to the implementation of optimized COVID containment measures, the robust recovery in activity and mobility, and stronger policy support, they expect a notable rebound in GDP growth in 2023.
Zhao Qinghe, a senior statistician at the NBS, noted the improvement in China’s vast manufacturing sector, saying that factory activity expanded due to resumption of normal production and daily life thanks to the implementation of the new COVID-19 response.
Total new orders bounced back to expansionary territory with its subindex rising to 50.9 in January, the highest level since June 2021. Also, the sub-index for production came in at 49.8 in January, compared with 44.6 a month earlier, according to the NBS.
Lu Ting, chief China economist at Nomura, said the January official Chinese PMI was in line with market expectations, while the non-manufacturing PMI was well above market expectations, thanks to the release of pent-up demand for in-person services sectors.
According to the Ministry of Culture and Tourism, 308 million domestic tourist visits were made during the seven-day Spring Festival holiday, up 23.1 percent year-on-year and equivalent to about 88.6 percent of the preCOVID level in 2019.
Looking to February, Lu said his team expects both the manufacturing and non-manufacturing PMIs to rise further.
But Lu warned of headwinds and challenges ahead, given relatively moderate pent-up demand, mainly in catering and tourism, long-term issues in the property sector and weakening external demand.
Citing the State Council executive meeting chaired by Premier Li Keqiang on Jan 28, Wen Bin, chief economist at China Minsheng Bank, said China has stepped up efforts to consolidate the momentum of the recovery.
Noting the challenge of lackluster demand, the meeting called for measures to promote an early recovery of consumption as the main economic driving force, steadfastly advance opening-up as well as upgrade foreign trade and investment.
Looking into the full year, Wen said China is on track for a steady rebound with the COVID shocks fading and stimulus policies taking effect gradually. He forecast that the economy will likely expand around 5.5 percent in 2023, compared with the 3 percent growth in 2022.