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China’s 2023 Growth Outlook at Risk Under Uncertain Covid Policy

·3 min read

(Bloomberg) -- Economists are becoming increasingly pessimistic about China’s economic outlook for next year, expecting any rebound to be bumpy under Beijing’s Covid Zero strategy and disruptions likely when the country eventually reopens.

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Nomura Holdings Inc. on Friday slashed its 2023 gross domestic product growth forecast for China to 4.3% from 5.1%. Goldman Sachs Group Inc. downgraded its outlook earlier this week to 4.5% from 5.3%, while Societe Generale SA on Friday estimated growth would be under 5% next year.

The median estimate in Bloomberg’s latest survey of economists is for GDP to expand 5.1% in 2023, down from a previous projection of 5.2%. The consensus for this year was also lowered, to 3.4% from 3.5%.

China’s volatile growth pattern this year has shown that the strength of any rebound could quickly evaporate when the government tightens curbs to contain coronavirus outbreaks, sometimes by locking down major cities as it did in Shanghai and Chengdu. Even if the government eases the Covid policy, which some economists expect to happen after March next year, a likely spike in infections could disrupt economic activity for some time.

“The outlook for the coming year seems unusually unclear,” Nomura economists including Ting Lu wrote in a note. If the government chooses to reopen after March -- once a reshuffle of China’s top leadership is completed -- “the potentially high infection rate might make the initial reopening quite slow, painful and bumpy,” they said.

Goldman also predicts Beijing will stick to its Covid Zero policy through at least the first quarter of 2023, expecting a jump in infections to follow any easing of restrictions.

READ MORE: Goldman Cuts China 2023 Growth Forecast as Covid Zero Stays (2)

On top of the Covid uncertainty, the country’s battered real estate market will remain a major drag on growth, despite the government’s recent supportive measures. An export boom over the past few years is starting to wane, the threat of capital outflows is rising as the US Federal Reserve hikes interest rates aggressively, and global energy supplies remain at risk because of the Russian-Ukraine war.

Analysts surveyed by Bloomberg slashed their median forecasts for year-on-year GDP growth by at least 30 basis points for each three-month period from the current quarter through June next year.

“Most recent developments suggest growth momentum has faltered again since September amidst the worsening of the Covid situation,” said Aidan Yao, senior economist at AXA Investment Managers. “With Beijing still reluctant to ease aggressively, we have marked down our forecast for the remaining two quarters of this year, leaving full-year growth now at 3%, down from 3.6% previously.”

Other survey highlights

  • Full-year inflation is expected to remain unchanged at 2.3% for both 2022 and 2023; producer-price growth is forecast to slow further to 5% this year, before moderating to 0.8% next year

  • Projections for annual retail sales growth in 2022 were downgraded by nearly a full percentage point to 2%. Sales will likely rebound to 6.6% in 2023

  • Forecasts for export growth for the full year were raised slightly to 9% from 8.7%. Projections for import growth were cut by more than 1 percentage point for both the third and fourth quarters of this year

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