Fitch lifts China’s growth forecast

Oksana Patron

10 February 2023

Fitch Ratings has revised its forecast for China growth in 2023 up to 5%, from 4.1% previously, as authorities moved away from their “dynamic zero Covid-19 policy”, helping the recovery of consumption and activity.

Additionally, Fitch said in a note that many high-frequency indicators remained below their pre-pandemic norms, even though they rebounded in sequential terms, and included the purchasing manager index (PMI) which jumped to 54.4 in January 2023 from 41.6 at the end of 2022.

Also, real GDP growth was higher in the last quarter of 2022 and the recovery would be expected to come off a firmer base and be consumption-led as households re-engaged in activities previously hampered by health controls.

“The sharp acceleration in household deposit growth recorded over 2022 could support even faster “catch-up” consumption than we now anticipate. However, we believe abnormally high deposits from 2022 will not be deployed exclusively toward consumption, as they also reflect a reallocation of assets away from property and other investments that may revert in 2023” the rating agency said.

However, Fitch believed that net trade would remain a drag on GDP growth this year due to a rebound in overseas tourism lifting services imports while export demand being depressed by economic slowdown in the US and Europe.

At the same time, Fitch warned that China’s fiscal policy remained “uncertain”, ahead of the Congress in march.

“We do not expect large consolidation this year, given the authorities’ recent emphasis on growth and stability. On a Fitch-consolidated basis, we forecast a budget deficit of around 7% of GDP in 2023, down from an estimated 8% in 2022. This will still be well above its pre-pandemic trend,” it said in a note.

“Announcements at the Congress may also clarify the authorities’ other policy priorities as they move on from the urgent challenges posed by the pandemic.

“We believe stabilising the recovery will remain the key focus in the near term, but do not anticipate aggressive macro-policy easing.”