China’s rapid reopening after years of COVID restrictions has shocked policymakers, businesses and health experts. The country may be experiencing millions of cases and thousands of deaths each day, with one official estimating that 90% of residents in one province have contracted COVID.
But economists think China can quickly ride out the COVID wave and start growing its economy again after years of pandemic controls, such as snap locks and lengthy quarantines, dragged down the country’s GDP. Banks also pointed to statements from Chinese policymakers that the government will focus on supporting the economy and easing crackdowns on private technology companies to make their predictions more bullish.
Banks raise projections for China’s GDP growth
In a research note published Monday, economists at Morgan Stanley raised their GDP forecast for 2023 to 5.7%, an increase of 0.3 percentage points from their previous forecast.
“The near-term pain of a quick reopening will be compensated by an earlier and stronger recovery,” Morgan Stanley economists said. “The market doesn’t appreciate the open ramifications anymore,” he said.
Other financial institutions have also upgraded their GDP forecasts since China abandoned tough pandemic controls.
Goldman Sachs raised its 2023 GDP forecast to 5.2% in mid-December after China’s COVID pivot. The US investment bank has not increased its forecast since then, but in a research note on Friday, the bank said it was ready to be more bullish on growth. “Risks to the forecast may increase if the COVID-19 caution eases rapidly now that the peak in national cases may be behind us,” the bank wrote.
BlackRock economists forecast 6% GDP growth in China for 2023 in a research note released Monday, “preventing a global slowdown.” However, the asset manager’s economists cautioned that growth will slow, saying they “do not expect the level of economic activity in China to return to pre-COVID trends, even if domestic activity resumes.”
Institutions cut forecasts for China’s GDP growth
International economic institutions are less optimistic than investment banks. In December, the World Bank said China’s GDP growth would reach 4.3% in 2023, downgrading its previous forecast of 4.5% GDP growth for the country. The World Bank said its predictions were “subject to significant risks,” noting “the possibility of renewed mobility restrictions” and “continued stress in the real estate sector.”
In November, the International Monetary Fund estimated that China would grow its GDP by 4.4% in 2023. Last week, IMF managing director Kristina Georgieova warned that China’s COVID surge could drag down the world economy. “The impact on Chinese growth will be negative, the impact on the region will be negative, the impact on global growth will be negative,” she said.
A consensus of Bloomberg economists predicts that China’s economy will grow by 4.9% this year.
Beijing will announce its GDP target for 2023 in March. The Chinese government is targeting GDP growth of 5.5% for 2022, although last week President Xi Jinping estimated that China’s economy could only grow by 4.4%.
Is China past the peak of COVID?
Chinese officials now think the country may have seen its worst outbreak yet, at least in major cities. Beijing’s acting mayor told state media on Tuesday that he believed the peak of COVID-19 had passed. Health experts have accused China of minimizing the scope of the current wave of COVID by taking steps like narrowing the definition of COVID death. But economists were cheered by the recovery in mobility, with train and domestic flight passenger numbers rising from December lows.
China’s outbreak is now spreading to the countryside, putting pressure on under-resourced rural health systems. Health experts worry that the upcoming Lunar New Year holiday – when migrant workers return home to the country to see family – could exacerbate the outbreak.
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