MIDF in its economic outlook review for the coming quarter said the momentum of growth for China will strengthen from 1QCY23. With the government announcing its victory over the Covid-19 pandemic, China’s economy is expected to see a turnaround from the slowdown in 4QCY22. GDP will likely grow stronger as early as from 1QCY23, looking at the better PMI readings in first two months this year, signalling improved business activities in both manufacturing and services sector.
This is coherent with industrial output rising faster at +2.4%yoy in Jan-Feb 2023 (Dec-22: +1.3%yoy). Moreover, consumer spending continued to recover following the rebound in retail sales, back to positive growth at +3.5%yoy in Jan-Feb 2023 (Dec-22: -1.8%yoy; Nov-22: -5.9%yoy). For the year, China’s economy is projected to grow +5.2% (2022: +3.0%), more or less in tandem with the government’s official growth target of +5.0%.
Property market to recover this year on the back of policy support. While policy support is expected to be one of the key factors to support China’s recovery, the rebound in home buying as well as increased investment in the real estate sector is expected to contribute towards improved growth this year. Property sales will likely recover after a sharp drop -26.7%yoy last year. Similarly, several measures to support the property developers, such as expanded bond financing, greater access to credit, and special funding to ensure timely delivery of new houses, will facilitate recovery in the real estate investment.
With the rebound in property investment from the -10%yoy decline in 2022, this will add to improved business activities in other sectors which were previously impacted by the strict Covid-19 lockdowns. With the loan prime rates maintained at current low levels, there was an acceleration in China’s loan growth since the economy reopened. Total outstanding loans expanded faster at +11.6%yoy in Feb-23 (Jan-23: +11.6%yoy; Dec-22: +11.1%yoy). The reduction in the reserve requirement ratio (RRR) for the banks to 7.6% effective on 27 March 2023 will also encourage the pumping of more liquidity into the interbank market to facilitate better credit growth to the economy. MIDF says it expects all this policy supports to help driving China’s recovery this year, on top of the normalisation of economic activities since the economy reopened in Dec-22
