UBS Group AG raised its forecast for China’s economic growth for this year and next, citing a stronger-than-expected recovery after Covid restrictions were dropped and an expected boost to consumer confidence.
(Bloomberg) — UBS Group AG raised its forecast for China’s economic growth for this year and next, citing a stronger-than-expected recovery after Covid restrictions were dropped and an expected boost to consumer confidence.
Gross domestic product is now projected to expand 5.4% in 2023, up from an earlier estimate of 4.9%, UBS economists including Wang Tao wrote in a note Monday. The economic re-opening is proceeding better than forecast, with a second wave of Covid infections not materializing and little sign of supply disruption, they said. The housing market is also recovering.
The rebound will likely continue into 2024 as consumer confidence gradually improves, UBS said, lifting its growth estimate for next year to 5.2% from 4.8%. The consensus estimate in a Bloomberg survey of economists is for growth to reach 5.3% this year and 5% in 2024.
At Sunday’s opening of the National People’s Congress — the annual parliamentary gathering — Premier Li Keqiang said the government will target GDP growth of around 5% this year, a less ambitious goal than many economists had expected, and a sign that authorities will likely refrain from rolling out more fiscal and monetary stimulus.
UBS said there could be more detailed support announced for key growth engines, like infrastructure investment and consumption, once new economic leaders take office.
“We think there is room for increased policy bank lending to support infrastructure investment, a form of ‘monetary and fiscal policy coordination,’ and it’s possible some consumption supporting measures will be rolled out by more local governments later,” the economists said.
Monetary policy is likely to remain “accommodative” although there’s unlikely to be another cut to the central bank’s policy interest rates, UBS said. The People’s Bank of China is likely to keep liquidity ample by relying more on on-lending and other facilities, and it’s possible it could cut the reserve requirement ratio one more time, it said. There is also room for banks to further lower loan prime rates a bit and cut actual mortgage rates, the economists said.
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