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Friday, Jun 02, 2023

China GDP growth revised up by Morgan Stanley, but IMF's fears over COVID-19 weigh heavy 

China GDP growth revised up by Morgan Stanley, but IMF's fears over COVID-19 weigh heavy 

China’s decision to relax its COVID-19 containment policies has prompted analysts at Morgan Stanley to revise up its 2023 gross domestic product forecast for the Asian powerhouse. 
The bank had previously estimated the country’s output would increase by 5 percent next year, but now anticipates 5.4 percent growth, according to a note. 

The global energy market is watching China's recovering mobility closely. Demand in the world's top oil buyer is expected to contract for the first time in two decades this year due to widespread lockdowns. 

"Given the faster pace of reopening, we now expect mobility to normalize — reaching the June-July 2022 levels — by end-March 2023 versus our prior expectation of May-June," Morgan Stanley analysts wrote in a note on Wednesday. 

However, it is anticipated that the first quarter of 2023 could be tough for the Chinese economy, with Morgan Stanley analysts adding: “Clearly the risk to short-term growth is to the downside should Omicron spread in China.” 

Optimism over China’s economic growth is not shared by all, with International Monetary Fund chief Kristalina Georgieva warning that a lower growth forecast is “very likely” for this year and next. 

Speaking to AFP news agency, Georgieva said while China’s zero-COVID-19 policy has battered its economy, “the easing of restrictions is going to create some difficulties over the next months.” 

This is because a spike in infections will be inevitable, with more people temporarily unable to participate in the labor force. 

“But it is likely that as China overcomes this in the second half of the year, there could be some improvement in growth prospects,” she said. 

The zero-COVID-19 policy, characterized by snap lockdowns, international travel restrictions and mass testing, took a heavy toll on consumers and businesses, with demonstrations against the measures eventually erupting in major Chinese cities. 

The IMF earlier warned that tough virus restrictions have been especially hard on China’s residents. 

Chinese officials said Monday that COVID-19 cases are surging in Beijing, with a sharp spike in people visiting hospitals across the capital city. Rising infections in smaller cities were also discussed on social media. 

The fund cut its growth projection for China in October to 3.2 percent this year — the lowest in decades — while expecting growth to rise to 4.4 percent next year. 

Georgieva said it is “very likely, we will be downgrading our growth projections for China, both for 2022 and for 2023.”  

Global economic leaders last week hailed China’s move away from its hard-line virus strategy, with hopes that relaxation would also help to shore up a world economy struggling with the fallout from the pandemic and Russia’s invasion of Ukraine. 

With 2023 set to be a “very difficult year” as well, Georgieva reiterated that the likelihood of further downgrades in IMF growth projections will be “high.” 

Apart from challenges in China, the US and EU are also expected to slow simultaneously, with projections for half of the EU to be in recession next year, she said. 

While the Washington-based fund earlier said there was a one-in-four chance global growth would fall below two percent next year, Georgieva added Tuesday that this probability has gone up. 
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