Economists see upside to China’s COVID chaos: higher economic growth in 2023

But economists believe China could weather its COVID surge quickly and let its economy grow again after years of pandemic controls like lockdowns and lengthy quarantines have dragged down the country’s GDP. The banks also cite statements by Chinese politicians that the government will focus on supporting the economy and reducing its crackdown on private technology companies to support their more optimistic forecasts.

Banks raise forecasts for China’s GDP growth

In a research note published Monday, economists at Morgan Stanley raised their GDP forecast for 2023 to 5.7%, up 0.3 percentage points from previous forecasts.

“The near-term pain of a quick reopening is likely to be offset by an earlier and stronger recovery,” Morgan Stanley economists wrote. “The market underestimates the far-reaching implications of the reopening,” they continued.

Other financial institutions have also revised upwards their GDP forecasts since China abandoned its strict pandemic controls.

Goldman Sachs raised its 2023 GDP forecast to 5.2% in mid-December after China’s COVID pivot was triggered. The US investment bank hasn’t raised its forecast since, but in a research note on Monday, the bank said it was prepared to be more optimistic on growth. “The risk to these estimates could well be to the upside if COVID caution eases relatively quickly after the peak of nationwide cases is likely behind us,” the bank wrote.

BlackRock economists forecast 6% GDP growth in China for 2023 “to cushion the global slowdown” in a research note published on Monday. However, the asset manager’s economists warn that the growth recovery will be fleeting, saying they “do not expect the level of economic activity in China to return to its pre-COVID trend, even if domestic activity picks up again.”

Institutions cut forecasts for China’s GDP growth

International economic institutions are less optimistic than investment banks. In December, the World Bank said it expected China’s GDP growth to hit 4.3% in 2023, lowering its previous 4.5% GDP growth forecast for the country. The World Bank said its forecast faced “significant risks”, citing “the possibility of renewed mobility restrictions” and “continued stress in the real estate sector”.

In November, the International Monetary Fund forecast that China would post 4.4% GDP growth in 2023. Last week, IMF Managing Director Kristina Georgieova warned that China’s COVID surge could hurt the global economy. “The impact on Chinese growth would be negative, the impact on the region would be negative, the impact on global growth would be negative,” she said.

A Bloomberg consensus of economists forecast that China’s economy will grow 4.9% this year.

Beijing will announce its GDP target for 2023 in March. China’s government was targeting GDP growth of 5.5% for 2022, although President Xi Jinping last week estimated China’s economy could only grow by 4.4%.

Has China passed the peak of COVID?

Chinese officials now believe the country may have already seen the worst of the outbreak, at least in the big cities. Beijing’s acting mayor on Tuesday told state media he believes COVID has passed its peak. Health experts have accused China of minimizing the scope of its current COVID wave by taking steps like narrowing the definition of a COVID death. However, economists are encouraged by a rebound in mobility as subway ridership and domestic flights rose from December lows.

China’s outbreak is now spreading to rural areas of the mainland, putting pressure on underserved rural health systems. Health experts are concerned that the approaching Lunar New Year holiday – when migrant workers return to their inland homes to see family – could further exacerbate the outbreak.

Learn how to navigate and build trust in your organization with The Trust Factor, a weekly newsletter exploring what leaders need to succeed. Sign up here.