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China has badly missed its 2022 growth target. The government had targeted around 5.5% growth, but according to official data from the National Bureau of Statistics (NBS), the Chinese economy grew by 3% last year. In 2021, China’s economy had been growing by 8.4%.
The People’s Republic’s gross domestic product (GDP) grew 2.9% in the fourth quarter of 2022 from a year earlier, slower than 3.9% in Q3, but better than the second quarter’s 0.4% growth.
In particular, the strict Zero-Covid policy with prolonged lockdowns and other restrictions weighed on the Chinese economy last year. This was compounded by the severe real estate crisis, high debt and weak domestic demand.
Turn around for China growth in 2023?
However, retail sales picked up in December stronger than expected, rising hopes for a recovery of the economy in 2023.
Retail sales in December fell 1.8% from a year earlier, economists had forecasted a double-digital decline of around 10%. Food, beverages and medicine registered strong growth figures.
“If retail sales in the last quarter of 2022 can be this good, then retail sales in the first quarter of 2023 should be even better. There could even be a jump in activity,“ writes ING economist Iris Pang.
How quickly China can recover is uncertain. With the abrupt reversal of the strict Covid-19 measures came a sharp rise in Covid cases.
“Although the big covid wave seems to be subsiding, there is still uncertainty about future waves of infection or new virus variants; however, after the Chinese New Year on 22 January, a return to normality is likely in most sectors of the economy,” says Cosmo Zhang, Analyst Emerging Markets Fixed Income, Vontobel.
ING is upgrading its forecast for China’s economy this year to 5%. “With a stronger end to 2022 than we had expected, plus indications of stronger retail expenditure ahead, the outlook for GDP growth in 2023 has improved compared to our prior outlook”, according to Pang.
“In our view, a faster-than-expected reopening, coupled with easier property sector policies and tech sector regulations, is likely to tilt the economy toward a strong and early cyclical recovery this year”, opines Neuberger Berman’s Associate Portfolio Manager Wei Siong Cheong.
Lately, China had indicated easing measures for the property sector and also the tech industry.
