Economists at Standard Chartered provide a brief outlook on the Chinese economy for the second quarter of 2023, based on the mixed economic performance witnessed in the first quarter.
Key quotes
“China’s headline GDP growth rebounded to 4.5% y/y in Q1 from 2.9% y/y in Q4-2022, beating the consensus forecast of 4.0% y/y. On a q/q seasonally adjusted (SA) basis, growth accelerated to 2.2% q/q in Q1, faster than 0.6% in Q4 and average pre-pandemic Q1 growth of 1.8% from 2017-19. Our calculation shows that China’s output gap narrowed to -1.2% of GDP in Q1 from -2.8% in Q4.”
“On a rolling annual sum basis, nominal GDP growth moderated to 4.5% y/y in Q1 from 5.3% in Q4. The widening gap between nominal GDP growth and reaccelerating M2 and total social financing (TSF) growth could, in our view, prompt the People’s Bank of China (PBoC) to temper credit growth in Q2 to ensure new loans are efficiently channelled to the real economy rather than circulated within the financial system.”
“We see modest upside risk to our annual GDP growth forecast of 5.8%. A strong base effect could see China’s Q2 GDP growth coming in higher than our forecast of 7.0% y/y, but a slowdown in the US and euro-area economies will likely weigh on China’s growth in H2.”
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With China’s economy continuing to remain on track for continued growth despite the disruption caused by the COVID-19 pandemic, there are indications that the country could see a higher-than-forecast growth rate for Q2 of this year. According to Standard Chartered, the world’s leading banking and financial services company, China’s Q2 Gross Domestic Product (GDP) could outpace expectations and attain a growth rate of 7.0 % or higher.
Prior to the COVID-19 pandemic, China was already in the midst of a steady economic recovery, with a growth rate of 6.1% in 2019, up from 6.0 % the preceding year. This was further boosted by the targeted policy measures adopted by the government including interest rate cuts, increased infrastructure investment and tax discounts to aid the pandemic-stricken firms. Significant progress has been made in containing the virus and the economy has also demonstrated hopeful signs of resurgence with the manufacturing sector witnessing a swift return to normal operations and demand.
As per Standard Charted’s report, the in-depth analysis of supply chain activity and key survey data suggests that the economic recovery will continue to accelerate over the coming months. The survey data indicates that China’s manufacturing sector, the largest contributor to GDP growth, will see an increase of 8.t% in Q2 growth rate which is higher than the predicted figure of 7.0%.
This prediction bodes well for the global economy and indicates a swift Chinese recovery that could help in achieving the global economic recovery. The rebound in exports and rise in automobile sales, as well as the expected strengthening of the services sector due to an easing of lockdowns across the country, will further add to the robust growth in Q2 of 2020.
Overall, this news is welcomed amidst the pandemic crisis and will further boost the prospects of China’s economic recovery. However, it is important to add that this is only a forecast and it remains to be seen if the actual figure turns out to be higher or lower than the estimated growth rate.
