China’s rapid reopening after lengthy COVID restrictions has taken policymakers, businesses and healthcare professionals by surprise. The country likely suffers millions of cases and thousands of deaths every day, and one official estimates that 90% of a state’s residents contract COVID.
But economists think China can quickly weather the COVID wave and start growing its economy again after years of pandemic controls, such as early lockdowns and long lockdowns, dragged the country’s GDP down. Banks also point to statements by Chinese policymakers that the government will focus on supporting the economy and lessen pressure on private tech companies to support further growth.
Banks raise forecasts for China’s GDP growth
In a research note released Monday, economists at Morgan Stanley raised their GDP projections for 2023 to 5.7%, a 0.3 percentage point increase from previous estimates.
“The short-term pain of a rapid reopening will likely be offset by an earlier and stronger recovery,” wrote Morgan Stanley’s economists. “The market does not adequately appreciate the far-reaching consequences of reopening,” they continued.
Other financial institutions have also raised their GDP forecasts since China abandoned its harsh pandemic controls.
Goldman Sachs raised its 2023 GDP forecast to 5.2% in mid-December following China’s COVID pivot. The U.S. investment bank hasn’t increased its forecast since then, but in a research note Monday, the bank said it’s ready for more upswing on growth. The risk to these estimates could be upside as the peak in nationwide cases likely lags behind if COVID-19 declines relatively quickly, the bank wrote.
In a research note released Monday, BlackRock economists project 6% GDP growth in China for 2023, saying it will “mitigate the global slowdown.” Still, the asset manager’s economists warn that the growth recovery will be temporary and “do not expect the level of economic activity in China to return to its pre-COVID trend, even if domestic activity resumes,” he said.
Institutions lower forecasts for Chinese GDP growth
International economic institutions are less optimistic than investment banks. In December, the World Bank said it expects China’s GDP growth to reach 4.3% in 2023, lowering its previous GDP growth forecast for the country from 4.5%. The World Bank said its forecast exposed “significant risk”, citing “the possibility of renewed mobility restrictions” and “persistent stress in the real estate sector”.
In November, the International Monetary Fund predicted that China’s GDP growth would be 4.4% in 2023. Last week, IMF Managing Director Kristina Georgieova warned that China’s COVID wave could pull the world economy down. “The impact on China’s growth will be negative, the impact on the region will be negative, the impact on global growth will be negative,” he said.
The Bloomberg consensus of economists is that the Chinese economy is growing 4.9% this year.
Beijing will announce its GDP target for 2023 in March. The Chinese government has targeted 5.5% GDP growth for 2022, but last week, President Xi Jinping estimated that the Chinese economy could only grow by 4.4%.