Notable economic recovery likely in 2023, say officials

While headwinds and pressures from a cloudy global outlook and COVID-19 shocks will continue to weigh on China's short-term outlook, the nation's economy still shows strong resilience and vitality, which are expected to lead to a notable recovery in 2023, officials and experts said.

Zhao Chenxin, deputy director of the National Development and Reform Commission, said that despite facing difficulties and challenges, China's economy will likely witness an overall recovery and improvement this year as a series of supportive policy measures gradually take effect.

China will work to give full play to the basic role of consumption and the key role of investment this year, while it will also continue to support the growth of the nonpublic sector and encourage the participation of private enterprises in major national strategic projects, Zhao said in a recent interview with Xinhua News Agency.

Data from the National Bureau of Statistics offers the latest snapshot of the multiple pressures from shrinking demand, supply shocks and weakening expectations.

The official purchasing managers index for China's manufacturing sector fell to 47 in December from 48 in November, the NBS said on Saturday. This is the third consecutive month in which the PMI remained below the 50-point mark, separating growth from contraction, with the pandemic continuing to weigh on both output and demand.

Zheng Houcheng, director of Yingda Securities Research Institute, said the data points to mounting pressures facing the economy, adding that China's GDP is likely to grow at a slower pace in the fourth quarter compared with the third quarter.

Zheng warned that COVID-19 infections may peak in China between January and February, which will impact the consumption recovery and property investment, and manufacturing investment will likely slow down.

Looking ahead, he expected to see stronger policy support to help the economy recover from the COVID-19 shocks, including a further cut in banks' reserve requirement ratio and increased financial support for key fields such as infrastructure construction, technological innovation, elder care, logistics and carbon emissions reduction.

Li Chao, chief economist at Zheshang Securities, said that while the pandemic will continue to disrupt economic activity in the short term, China will gradually shake off the COVID-19 impact and witness a notable recovery in 2023.

"Private consumption and, to a lesser extent, fixed investment and infrastructure spending, will be key drivers of the rebound," said Louise Loo, senior economist at British think tank Oxford Economics.

Despite the impact of COVID-19 outbreaks, troubles in the property sector and weakening external demand amid growing global recession fears and rising interest rates, China's economy has shown strong resilience and vitality.

The onshore renminbi rose past the 6.9-per-dollar level on Friday, the last trading day before the New Year holiday, jumping more than 700 basis points from Thursday's close, said market tracker Wind Info.

The offshore renminbi also gained more than 500 basis points to close at 6.921 on Friday, though retreating to roughly 6.93 as of Monday afternoon, according to Wind Info.

The jumps came amid China's latest steps to expand financial opening-up and internationalize the renminbi. The People's Bank of China, the nation's central bank, said on Friday that the trading hours of the interbank foreign exchange market will be extended to 3 am the next day, effective from Tuesday, when the market reopens after the New Year holiday break. Prior to the new move, the onshore foreign exchange market closed at 11:30 pm.

Loo from Oxford Economics said the renminbi may trade around the 7-per-dollar level and strengthen moderately as China's economic rebound gathers pace in the second and third quarters.

But the renminbi may still feel some depreciation pressure from the greenback in the near term as the Fed rate hike cycle has yet to end while COVID-19 uncertainties remain in China, she said.