Fitch Ratings has issued a “significant upgrade” to its China growth forecast for 2023, with the ratings agency now expecting the economy to expand by 5.2% this year – revised upwards from its previous forecast of 4.1% issued in December and from 5.0% in February.
The upgrade, which follows China’s decision to dump its COVID-zero policy in early January, is linked to a series of “high-frequency mobility indicators, PMI (Purchasing Managers’ Index) surveys and anecdotal reports” during the first two months of the year which suggests a rapid rebound is underway in activity and spending, Fitch said in a Monday note.
The faster than anticipated recovery is being led by consumer spending, particularly on “contact-intensive” activities, such as travel, accommodation, entertainment and restaurants, which were directly affected by pandemic restrictions.
“Subway travel has already recovered to above pre-pandemic levels and the non-manufacturing PMI rebounded to 56.3 in February, from 41.6 in December,” the agency explained.
“The manufacturing PMI reached an 11-year high of 52.6 in February,and in December there were the first signs of a revival in consumer confidence. The initial surge in COVID-19 cases in the aftermath of eased restrictions seems to have had only a brief impact on activity and we now expect a 1.4% quarter-on-quarter expansion in GDP in 1Q23.”
Fitch also said China’s recovery has had a major impact on its world GDP growth forecast for 2023, which has been upgraded from 1.4% in December to 2.0%. Of this 2.0% estimated growth, China accounts for 1.2 percentage points, or 60% of global growth.
The agency added that this is the first upgrade to its year-ahead world growth forecasts since the start of the Russia-Ukraine war, aided not only by China but also “a material easing of the European natural gas crisis and surprising near-term resilience in US consumer demand.”
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