China’s Economy Expected to Grow 5% This Year

China’s economy will expand by 5% in 2023, according to ratings agency Fitch, an improved forecast from the growth forecast of 4.1% the agency had made in December.

New data reveals that consumption and activity in China are recovering faster than initially anticipated after the government removed most of its stringent COVID restrictions that were virtually applying a handbrake on economic activity.

China’s latest manufacturing purchasing managers’ index (PMI) reading rose to 50.1 in January from a previous reading of 47. A number over 50 indicates expansion of economic activity. A reading under 50 points to a contraction. China’s services PMI rose to 54.4, the highest level since June 2022. 

After authorities lifted COVID measures earlier this year, large waves of COVID outbreaks across the world’s second-largest economy caused fears that the country would be hit by a debilitating health crisis. However, the waves appear to be subsiding, according to updates from health officials.

The rapid rebound from the COVID shockwave means that activity in 2023 will be stronger than forecast. Many economists foresee a consumption-led recovery, although spending is expected to be cautious due to strains in consumer confidence.

Economists estimate that Chinese households have excess savings worth more than four trillion yuan ($590 billion) accumulated during the lockdown period. Analysts feel these excess savings may not be released very fast in 2023 as many consumers are still hesitant to return spending to normal levels.