China’s Economy Spit to a Halt as Covid Infections Rise
As corporate and consumer spending fell sharply in December, China’s economy entered the new year in a massive recession. As Covid infections soar across the nation, further disruption is inevitable in the coming months.
The manufacturing downturn grew deeper last month, while services activity fell to its lowest level since February 2020, according to official statistics released over the weekend.
Separately, China Beige Book International’s private survey of companies released on Monday indicates that the economy shrank in the fourth quarter compared to the same period the previous year.
People stayed at home due to falling unwell or fearing becoming infected as a result of China’s abrupt abandonment of rigorous Covid regulations in December.
While the virus is rapidly spreading throughout the nation, a pandemic probably peaked in regions like Beijing, where the economy is beginning to recover. The Lunar New Year celebration in late January is likely to cause a travel rush, which could cause cases to spread to rural areas and impede activity during the first quarter.
According to economists at Citigroup Inc., December may have been the PMI’s low point, and the following months may see a comeback.
A private PMI survey confirmed the alarming fall in December on Tuesday. The Caixin manufacturing index primarily represents smaller, export-focused enterprises, from 49.4 in November to 49. However, businesses had a positive perspective for the future, with confidence in the 12-month forecast reaching a 10-month high.
Once the virus wave peaks, economists anticipate a faster recovery, with growth projected to pick up to 4.8% this year from an expected 3% in 2022.
With forecasts that China’s reopening from Covid restraints, while first disruptive, will eventually enhance the economy and business earnings, stock investors have been more bullish for the new year.
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Hang Seng China Enterprises Index
In the past two months, the Hang Seng China Enterprises Index, which monitors Chinese companies listed in Hong Kong, has increased by 36%, outperforming a more extensive index of Asian equities by more than 20 percentage points. After ending a third year of declines in 2023, the index is anticipated to recover, ending the worst losing trend since its debut in 1994.
Even so, the recovery will probably be rocky and economic growth is still well below pandemic levels.
Over the recent three-day New Year’s break, travel was comparatively quiet. The Ministry of Culture and Tourism reporte that although the number of trips was essentially unchanged from the previous year, tourism revenue was up 4%. While there were 42.8% more trips than in 2019, the industry’s income was just 35.1% of what it was in 2019.
The lifting of Covid curbs comes at a time of weak growth
In December, the Covid limits were lifted when the economy was struggling. Consumer and corporate confidence have almost reached record lows as a result of trade restrictions, and demand for Chinese goods abroad has fallen sharply.
Independent data source China Beige Book claims that its polls indicate the GDP expanded by barely 2% last year.
Policymakers have promised more financial and monetary support to help the economy rebound this year. Fiscal spending would be increase “appropriately” in 2023, according to a statement from the Ministry of Finance last week. Additionally, the central bank promised to continue credit growth and stimulate domestic demand.
According to a survey of experts published in official media on Tuesday, China will likely increase the budget deficit ratio for 2023 while lowering interest rates and the required reserve percentage for banks during the year’s first half.