China’s Economic Resilience Shines: JPMorgan and Citi Raise Forecasts for 2023

After China reported a remarkable 4.5% growth in its gross domestic product during the first quarter of the year, experts at JPMorgan and Citi revised their full-year predictions for China’s economy. JPMorgan’s previous forecast of 6% for 2023 has been upgraded to 6.4%, as the Q1 report indicates that there will be more expansion in the future.

Citi also revised its previous prediction of 5.7% to a more optimistic projection of 6.1%, which is above the consensus view. The economists at Citi believe that China’s economy is making significant progress in its post-Covid recovery, mainly due to a rise in consumption and services.

They also acknowledged that the first-quarter growth exceeded expectations and may indicate further expansion in the future. However, Citi economists led by Xiangrong Yu expressed caution in their outlook, given that the release of pent-up demand during the pandemic and holidays may not sustain without significant government stimulus. UBS also raised its forecast from 5.4% to 5.7% for the year based on the robust recovery in consumption and property, which exceeded their expectations in Q1 2023.

In their Tuesday note, Citi economists stated that the upcoming Politburo meeting could present an opportunity for policymakers to instill more confidence in the private sector.

The experts added that various structural issues require further efforts, and policymakers are unlikely to relax. The latest economic data also suggests that additional stimulus may not be necessary.

The experts believe that the strong Q1 GDP data may prompt discussions on economic-related issues during the April Politburo meeting. They had low expectations of stimulus this year, and the Q1 data may even reduce such expectations further.

Citi advised investors to monitor policies related to structural reform. The experts opined that this year may present a chance for the government to devise a comprehensive and institutional solution to local government debt. With the stabilization of the economy, structural reform could be the next area to watch out for.

HSBC, on the other hand, believes that maintaining the recovery momentum will be a critical task for Chinese policymakers. Although the recovery is underway, there are still some uneven aspects, such as unstable property investment and a decline in private investment growth. Hence, Beijing may need to continue its policy support to sustain the recovery momentum. Morgan Stanley economists led by Zhipeng Cai suggested that there could be an upside risk to their full-year GDP forecast of 5.7%, following a robust Q1 performance.

According to Morgan Stanley economists, the remaining period of the year could surpass the projected average of 4.8% quarterly growth due to the low inflation rate in China. The country’s consumer inflation rate has hit an 18-month low this month.

The experts noted that the sequential growth may slow down in Q2, given that the year-to-date growth was partly supported by pent-up demand and the catch-up in labor-intensive exporters. BNP Paribas also adjusted its full-year forecast of 5.6% upwards after the Q1 GDP report.

The economists observed that the ongoing recovery is two-paced, with services outperforming goods and consumption exceeding investment and exports. While property sales have the potential for further recovery, they believe that investment will continue to lag behind as developers transition to low-leverage and low-turnover business models.

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