Domestic demand to help drive strong rebound, say economists

China's economy has shown signs of resilience and vitality, and is set to rebound strongly in 2023 with a gradual pickup in domestic demand, including consumption and investment, according to economists.

They said the world's second-largest economy will likely see economic prospects improve noticeably in the second quarter given the optimized COVID-19 containment measures. Private consumption and infrastructure spending will be the key drivers of the rebound.

"China's growth potential remains strong," said Lin Jianhai, vice-president of the International Finance Forum (IFF).

"Given the large slack in the economy and low inflation, a continued fiscal policy with a shift to greater support for households and consumption, combined with some additional interest rate-based monetary easing, would promote a balanced recovery in 2023."

Even though the economy will likely face some difficulties in the first few months of the year, growth, particularly in consumption, is expected to pick up from the second quarter as waves of COVID-19 subside, Lin, who is also former secretary of the International Monetary Fund, told China Daily.

"For the year, various projections point to a growth rate of about 5 percent or even higher (in China)," he added.

The tone-setting Central Economic Work Conference, which concluded in mid-December, has sent a clear signal that reviving the COVID-hit economy and bringing GDP growth back within a reasonable range will be a major task of the government.

China's pro-growth stance and the optimization of COVID-19 control measures have cheered investors and analysts. Many economists and banks have recently upgraded their forecasts for China's growth prospects to above 5 percent for this year.

Morgan Stanley recently raised its forecast for China's economic growth this year from 5.4 percent to 5.7 percent, saying a robust cyclical recovery can occur despite lingering structural headwinds.

Lisa Shalett, Morgan Stanley Wealth Management's chief investment officer, said China could see economic prospects improve by the spring.

Shalett said that China's growth prospects could also have positive spillover effects for other economies in Asia and Latin America in 2023 in areas such as exports and tourism.

"Since it's not experiencing high inflation or rising interest rates, China has a significant runway for stimulus — a policy lever it will likely pull in 2023 to support the residential housing market," she said in a recently published briefing.

While multiple cyclical and structural headwinds — from a gloomy global outlook to China's weak property market — may weigh on the country's near-term outlook, macro policy easing will help stabilize the economy, with targeted property sector support, relief measures for households and infrastructure spending being the preferred policy tools, said Louise Loo, senior economist at British think tank Oxford Economics.

Local governments have voiced optimism for a robust 2023 upon expectations of a gradual recovery in domestic activity.

China's 31 provinces, autonomous regions and municipalities have set their growth target for this year within a range of 4 percent to 9.5 percent, with most of them targeting around 6 percent.

Zhou Maohua, an analyst at China Everbright Bank, said that localities have given priority to the expansion of domestic demand, saying more efforts will be made to spur consumption, continuously deepen reforms, accelerate industrial upgrading and promote high-quality development.

The four provinces with the highest economic volume — Guangdong, Jiangsu, Shandong and Zhejiang — have all targeted annual growth of around 5 percent for this year. Guangdong, Shandong and Zhejiang set their growth targets at "above 5 percent", while Jiangsu vowed to reach a growth rate of around 5 percent.

"China will likely post above 5 percent economic growth in 2023 given the further implementation of optimized COVID control measures, a package of stimulus policies taking effect gradually and the low comparison base in the previous year," Zhou added.