China Lifts Lockdown, Eyes 5% Growth Rate Next Year... COVID-19 Spread Remains a Variable

Oil Prices Rise on Expectations of China's Economic Recovery
Corporate Sentiment Worsens Amid Rising COVID Cases... Turnaround Expected in Q2 Next Year

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[Asia Economy Reporter Kwon Haeyoung] As China lifts its COVID-19 lockdown measures, expectations for economic recovery next year are emerging. While optimistic forecasts suggest that a growth rate in the 5% range will be easily achieved, there are also numerous uneasy views that China will find it difficult to escape the economic slowdown trend due to the recent increase in COVID-19 cases and the impact of the global economic recession.

On the 19th (local time), China Daily published a column titled "China is accelerating recovery in 2023," stating that "a 5.5% economic growth rate for China next year is an achievable goal," and "if China can make up for the shortfall in growth rate in 2022, it could even reach a growth rate of 7 to 7.5%."

With the Chinese government easing COVID-19 lockdown measures, the number of confirmed cases is expected to peak by the end of January next year, before the Lunar New Year, and then decline, leading to normalization of economic activities in the spring. China Daily noted, "From the second quarter, social and economic activities will normalize, enabling rapid growth," and added, "especially, the base effect from the second quarter of this year, when the growth rate was close to zero, will be beneficial."

Among global investment banks (IBs), some have also projected China's growth rate to be in the 5% range next year. According to Xinhua News Agency, France's Soci?t? G?n?rale stated, "China's economy will rebound from the second or third quarter next year and grow strongly for three to four quarters," forecasting that China can achieve a 5% growth rate next year. U.S. Morgan Stanley also raised its growth forecast for China next year from 5.0% to 5.4%.

One of the leading economic indicators, crude oil prices, also showed an upward trend amid expectations of China's economic rebound. The price of West Texas Intermediate (WTI) crude oil for January delivery closed at $75.19 per barrel on the New York Mercantile Exchange on the 19th, up 1.21% from the previous day. This reflects expectations that China's easing of COVID-19 restrictions will rapidly restore oil demand next year.

The variable is COVID-19. The increase in confirmed cases may prevent China's domestic market from escaping the slump, becoming an obstacle to economic recovery. There is also survey data showing that corporate sentiment in China has sharply deteriorated following the significant rise in COVID-19 cases. According to a survey by British consulting firm World Economics (WE) of sales managers from over 2,300 Chinese companies, the corporate confidence index recorded 48.1 in December, down 3.7 points from 51.8 in the previous month. This is the lowest level since the survey began in 2013. WE analyzed, "This survey result suggests that China's economic growth rate has sharply slowed and that the economy may head toward a recession in 2023."

With the possibility of a recession increasing due to steep interest rate hikes by major countries, China's export outlook for next year is also not bright. The real estate market downturn remains a variable for China's economy.

Earlier, many international organizations downgraded their growth forecasts for China next year. The Asian Development Bank (ADB) recently lowered its growth forecast for China next year to 4.3%, and the International Monetary Fund (IMF) to 4.5%, each down by 0.2 percentage points from previous estimates. Both institutions cited COVID-19 lockdowns and the real estate market downturn as risk factors for China's economy. How quickly China can enter a phase of normal daily life and economic activity normalization after the peak increase in confirmed cases following the government's lifting of lockdowns will be key to China's economic recovery next year.

However, Wang Hangsheng, Chief Economist at Hangsheng Bank, said, "Liquidity is running dry, especially among small businesses in the service sector such as restaurants, gyms, and hotels," and predicted, "It will take at least one quarter for the situation to turn around following the Chinese government's easing of lockdown measures."

This content was produced with the assistance of AI translation services.