Rating agency Fitch has upgraded its growth forecast for China this year citing a faster-than-expected recovery after Beijing called an end to its ‘zero-Covid’ regime.
Fitch predicted China’s economy will now grow by 5.0% and not 4.1% with the recovery primarily led by consumption, noting that many high-frequency indicators have recently rebounded though still remain below pre-pandemic norms.
Despite the forecast upgrade, the rating agency expected the economic rebound this year to be less vigorous than that in 2021, when the economy posted GDP growth of 8.4%.
“This reflects in part ongoing weakness in the property market, which showed little evidence of an improvement in sales or housing starts in late 2022, despite a build-up of incremental policy support,” Fitch said in a statement.
In addition, net trade may become a drag on economic growth in 2023, Fitch added, with export demand being depressed by economic slowdowns in the United States and the Europe.
The direction of fiscal policy would remain uncertain ahead of the a parliament meeting in March, Fitch said.
Premier Li Keqiang pledged last week that the government will work to consolidate and expand the economic recovery momentum despite facing difficulties and challenges.
Fitch does not expect aggressive macro-policy easing, and is forecasting a budget deficit of around 7% of GDP in 2023, down from an estimated 8% in 2022.
Policymakers plan to step up support for domestic demand this year but are likely to stop short of splashing out big on direct consumer subsidies, keeping their focus mainly on investment, Reuters previously reported.
- Reuters with additional editing by Sean O’Meara