In China, the official PMIs published on January 31st and the most recent mobility indicators show that domestic demand is rebounding faster than expected following the end of the zero covid policy and the re-opening of the country. This trend should strengthen further in the coming months assuming the epidemic curve continues to improve. We now expect economic growth to be slightly over 5% in 2023, up from 3% in 2022.
The rebound in activity will be driven by private consumption and the services sector, which will benefit from catch-up effects and from the rise in domestic confidence after three years of health restrictions. In addition, thanks to policy support measures, the property sector should be able to stabilize during the year. Yet, the end of the property market crisis is likely to be complicated, as a large number of property developers continue to face financial difficulties and default risks remain high.
The post-Covid rebound in Chinese growth will have positive effects on other emerging economies in Asia.
Firstly because the re-opening of Chinese borders will have significant effects on tourism in Asia. Hong Kong, Vietnam and Thailand, as well as Singapore and Malaysia, will be the main beneficiaries, because of the large size of the tourism sector in these economies and their reliance on Chinese tourists.
Besides, if the situation of the Chinese property sector improves, the demand and the price of energy and metal commodities should be boosted. This would benefit to commodity exporters such as Indonesia.
At the same time, however, in case of a new rise in global commodity prices, this would cause new inflationary pressure and delay the end of monetary policy tightening in Asian countries.
Lastly, the rebound in Chinese growth should have a limited impact on trade of manufactured goods in Asia. Chinese demand for manufactured goods is mostly for its export sector, and much less for its domestic market. Therefore, it depends largely on the final demand originating from developed countries. This final demand is weakening rapidly and the world electronics cycle is turning down. As a matter of fact, industrialized countries in emerging Asia already registered a significant decline in their exports of goods in the last two months of 2022. These dynamics are expected to continue in the short term.
All in all, the growth rebound in China should bring a welcome support to activity in the region, especially in the services sectors. That being said, Hong Kong and Thailand – together with China – should be the only main countries in Asia posting a stronger growth this year than in 2022. On average, economic growth in emerging Asia excluding China and India will slow in 2023, reaching 3.6% against 4.5% in 2022. Domestic demand will be affected by tighter financial conditions and the reduction in post-Covid catch-up effects. And most importantly, exports of goods will suffer from the weakening in global demand.
