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Top ten macroeconomic trends in China in 2023

Galaxy Paris wrote a column · Jan 3, 2023 20:52
After the epidemic, China's household consumption recovery has been weaker than that of production and exports. This year, consumption recovery remains slow, with the total national retail sales of consumer goods growing 0.6% year-on-year from January to October, significantly lower than the average growth level before the epidemic, with the epidemic having a significant impact on offline contact service consumption in particular.
In the short term, the pace of future consumption recovery will still be disturbed by the epidemic and epidemic prevention and control policies.
From the global consumption recovery experience, after the epidemic's peak, consumption rebounded to varying degrees with the relaxation of epidemic prevention and control measures. The consumption growth rate increased compared with the pre-epidemic level.
Recap for the year 2022, China's macroeconomy faces multiple downward pressures and slow economic growth. In particular, challenges from the following four areas had a significant impact.
1. The continued spread of the COVID-19 epidemic
Omicron mutant strain is more contagious, triggering several rounds of epidemic spread and significantly impacting our economic recovery. With the arrival of winter, the recent rebound of new daily confirmed cases in China again moved the social economy.
2. Real estate market continues to be under pressure
From January to October this year, the area of new housing construction in China fell 38%, the lowest since 2009. Meanwhile, the cumulative real estate investment fell 8.8% year-on-year in the first ten months and is expected to decline for the first time in history for the whole year, pulling down this year's GDP growth rate by 1.7 percentage points in our estimation. In addition, the sharp decline in revenue from land use rights concessions has also compressed the fiscal space of local governments.
3. The Fed's rapid interest rate hike triggered significant volatility in the global economy and financial markets
In response to surging inflation, the Federal Reserve has raised interest rates six consecutive times since November, with a cumulative increase of 375 basis points. On the other hand, China has taken growth stabilization as the core starting point for monetary policy objectives and adopted relatively accommodative economic policies such as interest rate cuts.
The difference between the monetary policies of China and the U.S. has increased the volatility of China's financial market this year, impacting the exchange rate and cross-border capital flows.
4. Increased geopolitical uncertainty
Russia is one of the world's major oil and gas producers, and Russia and Ukraine are also major global producers of food and oil crops. The Russia-Ukraine conflict has intensified short-term supply pressure, pushed up inflationary trends, and may have far-reaching effects on the long-term geopolitical landscape.
Meanwhile, the U.S. continues to exert pressure on China's high-tech sector through export controls and other means, and the game between China and the U.S. has become the new normal.
Looking ahead to 2023, China will maintain a more active macroeconomic policy next year.
The December 6 meeting of the Political Bureau pointed out that active fiscal policy should be strengthened and made more effective, and prudent monetary policy should be specific and robust. Industrial policy should be both development and security, science and technology should focus on self-reliance and self-improvement, and social policy should hold the bottom line of people's livelihood.
China's macroeconomic environment is expected to improve next year, with GDP expected to grow by 5.2% in 2023, on top of 3.2% growth this year.
In addition, China's economy will need to pay particular attention to the following challenges next year.
- First, weaker external demand against a global economic slowdown will put more significant downward pressure on China's exports.
- Second, household and business confidence is still weak, the urgent need to stabilize confidence and expectations to pull demand recovery.
- Third, the prevention and control policy liberalization may bring short-term epidemic rebound and impact the economy, which also deserves attention.
While the recovery continues, we expect China's macro economy will also show ten significant trends.
1. Macroeconomic growth rate improves, but the recovery remains weak
2. Epidemic prevention and control policies will be liberalized in an orderly manner, focusing on vaccination for the elderly, medical resource preparation, and public opinion propaganda
3. Consumption improves with epidemic relief, and savings help consumption recovery
4. High-tech manufacturing industry, new energy leading investment growth
5. Macroeconomic policies remain positive, and policy development financial tools to increase support
6. The real estate market is still weak, but the drag on the economy is reduced
7. Global economic growth is slowing down, and the decline in external demand puts pressure on exports
8. The pace of the Federal Reserve interest rate hikes slowed down, the exchange rate of the RMB, and capital market pressure reduced
9. Geopolitics is still complex and volatile; enterprises need to think about risk response plans to accelerate basic research and development and improve the national security system
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