Hong Kong
CNN
—
As China moves closer to fully recovering from three years of government-imposed Covid isolation and rejoining the world, economic expectations are high.
Beijing’s recent pivot from its strict zero-Covid strategy – which had long stifled businesses – is expected to bring vitality to the world’s second-largest economy over the next year.
Covid lockdowns and border restrictions have left China out of sync with the rest of the world, disrupting supply chains and disrupting the flow of trade and investment.
And with the global economy now facing significant challenges, including energy shortages, slowing growth and high inflation, China’s reopening could provide a much-needed and timely boost.
However, according to economists, the process of reopening is likely to be unpredictable and painful as the country’s economy faces a bumpy ride in the early months of 2023.
China’s historic housing downturn and a potential global recession could also cause more headaches in the new year, they added.
“In the short term, I believe China’s economy will see chaos rather than progress for one simple reason: China is ill-prepared to deal with Covid,” said Bo Zhuang, senior sovereign analyst at Loomis, Sayles & Company, a Boston-based company resident companies. based investment company.
For nearly three years, China stuck to its zero-tolerance approach to the virus despite the policies causing unprecedented economic damage and widespread frustration. In 2022, growth slowed sharply, corporate profits plummeted and youth unemployment rose to record highs.
Amid mounting public unrest and financial pressures, the government abruptly changed course this month, effectively abandoning zero-Covid.
While the easing of restrictions is a long-awaited relief for many, its suddenness has caught an unprepared public off guard, leaving them largely to their own devices.
“In the initial stages, I believe reopening could trigger a wave of Covid cases that could overwhelm the healthcare system, dampening consumption and production,” Zhuang said.
Already, the rapid spread of the infection has pushed many people indoors and emptied shops and restaurants. Factories and businesses have also been forced to close or scale back production as more workers fall ill.
“Living with Covid will be more difficult than many assume,” said analysts at Capital Economics.
They expect China’s economy to contract by 0.8% in the first quarter of 2023 before rebounding in the second quarter.
Other experts also assume that the economy will recover after March. In a recent research report HSBC economists forecast a 0.5% contraction for the first quarter but 5% growth overall for 2023.
China’s arbitrary reopening isn’t the only factor weighing on the economy. In 2023, pundits will continue to watch as policymakers seek to fix the country’s ailing real estate sector, which accounts for nearly 30% of GDP.
The crisis in the industry — which began in late 2021 when several high-profile developers defaulted on their debts — has delayed or halted the construction of pre-sold homes across the country. That sparked a rare protest this year from homebuyers who refused to pay mortgages on unfinished homes.
While Beijing has made a series of attempts to bail out the sector – including unveiling a 16-point plan last month to ease the credit crunch – the stats still paint a bleak picture.
Home sales by value fell more than 26% in the first 11 months of this year. Investments in this sector fell by 9.8%.
At a key policy meeting earlier this month, top executives pledged to focus on stimulating the economy next year and suggested they would introduce new measures that would improve the financial health of the real estate sector and boost market confidence.
“The measures announced so far are not enough to turn the tide, but policymakers have signaled that further support is on the way,” analysts at Capital Economics said.
“This should give homebuyers enough reassurance that sales may be increasing before the middle of next year.”
A possible global recession is another key concern that will shape China’s economic landscape in 2023.
Trade had driven much of China’s economic growth earlier this year as exports were boosted by rising prices of the country’s goods and a weaker currency.
But in recent months, the trade sector – which accounts for around a fifth of China’s GDP and provides 180 million jobs – has begun to show cracks due to a global economic slowdown.
Last month, China’s outbound shipments fell 8.7% yoy, much worse than October’s 0.3% drop. That was its worst performance since February 2020, when the Chinese economy nearly ground to a halt amid the first coronavirus outbreak.
Countries around the world face recession as policymakers continue to raise interest rates to combat rising inflation.
“[China’s] Exports have already reversed much of their pandemic-era boom,” said analysts at Capital Economics.
“But a looming global recession means they will likely have to fall further over the next few quarters.”
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