As China As we move closer to a full three-year resurgence of government-mandated Covid isolation and reintegration with the world, economic expectations are high.
Covid lockdowns and border restrictions are putting China out of sync with the rest of the world, disrupting supply chains and hurting the flow of trade and investment.
And with the global economy facing major challenges, including energy shortages, slowing growth and high inflation, China’s reopening could provide a much-needed and timely boost.
But the reopening process is likely to be erratic and painful, according to economists economy of the country in for a bumpy ride in the first few months of 2023.
“In the short term, I think the Chinese economy will experience 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 investment company.
For nearly three years, China maintained its zero-tolerance approach to the virus, even as the policy caused unprecedented economic damage and widespread frustration. Growth in 2022 delayed sharp, corporate profits collapsedand youth unemployment rose to record levels.
While the easing of restrictions has been a long overdue relief for many, its abruptness has left an unprepared public caught off guard and largely left to their own devices. take care of themselves.
“In the early stages, I think the reopening could unleash a wave of Covid cases that could overwhelm the healthcare system, dampening consumption and production in the process,” Zhuang said.
The rapid spread of the infection has already driven many people inside and emptied shops and restaurants. Factories and companies have also been forced to close or reduce production as more workers fall ill.
“Living with Covid will be harder than many think,” Capital Economics analysts said.
They expect the Chinese economy to contract by 0.8% in the first quarter of 2023 before recovering in the second quarter.
Other experts also expect the economy to recover after March. In a recent research report HSBC economists predicted a contraction of 0.5% in the first quarter, but overall growth of 5% for 2023.
China’s haphazard reopening is not the only factor affecting the economy. In 2023, experts will continue to watch as policymakers try to restore the country’s ailing real estate sector, which accounts for nearly 30% of GDP.
The crisis in the industry – which started in late 2021 when several high-profile developers have defaulted on their debt — has slowed or halted construction of pre-sold homes across the country. That triggered a rare protest by homebuyers this year refusing to pay mortgages on unfinished homes.
Property sales in value fell by more than 26% in the first 11 months of this year. Investments in the sector fell by 9.8%.
At a major policy meeting earlier this month, top leaders promised to focus on stimulating the economy next year, suggesting they would roll out new measures that improve the financial condition of the real estate industry and boost market confidence.
“The measures announced so far are not enough to bring about a turnaround, but policymakers have signaled that more support is on the way,” Capital Economics analysts said.
“This should reassure homebuyers enough to boost sales perhaps before the middle of next year.”
A potential global recession is another major concern that will shape China’s economic landscape in 2023.
trade had powered 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 about a fifth of China’s GDP and employs 180 million jobs, has begun to show cracks as a result of a global economic slowdown.
Last month, China’s outbound shipments contracted 8.7% year-on-year, far worse than October’s 0.3% drop. That was the worst performance since February 2020, when China’s economy collapsed almost came to a stop during the first outbreak of the coronavirus.
Countries around the world are facing a recession as policymakers continue to raise interest rates to counter rising inflation.
“[China’s] exports have already reversed much of the boom in the pandemic era,” Capital Economics analysts said.
“But a looming global recession means they should likely fall further in the coming quarters.”