As China moves away from zero-Covid, what will the economy look like in 2023?

As China moves away from zero-Covid, what will the economy look like in 2023?
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Hong Kong

ace demon As we move ever closer to fully emerging from the three-year government-imposed Covid lockdown and re-integrating with the world, economic expectations are high.

of Beijing the last turn from the strict zero Covid strategy suffocated for a long time enterprises – expected inject vitality next year it will become the second largest economy in the world.

Covid lockdowns and border restrictions have put China out of sync with the rest of the world, disrupting supply chains and hurting trade and investment flows.

With the global economy currently facing significant challenges, including energy shortages, slowing growth and high inflation, China’s reopening could provide a much-needed and timely boost.

But economists say the reopening process is likely to be volatile and painful. economy of the country The first few months of 2023 are in for a rough ride.

of China historical property decline and a potential global recession may cause more headaches in the new year, they added.

A woman crosses the street on the Bund Street in Shanghai's Huangpu District on December 21, 2022.

“In the short term, I believe China’s economy will experience more chaos than progress for one simple reason: China is poorly prepared to deal with Covid,” said Bo Zhuang, senior sovereign analyst at Loomis, Sayles & Company in Boston. capital investment company.

For nearly three years, China has stuck to a zero-tolerance approach to the virus, even as the policy has caused unprecedented economic damage and widespread frustration. Increase in 2022 slowed down sharp, the company’s profits collapsedand youth unemployment rose to record levels.

Between growing social unrest and financial pressuregovernment suddenly changed course this month, effectively giving up zero-Covid.

While the easing of restrictions was a long-awaited relief for many, its suddenness caught an unprepared public off guard and left them largely stranded. they look after themselves.

There are few customers at a shopping mall in Suqian, Jiangsu Province, China, 26 December 2022.

“At the initial stage, I believe that the reopening could trigger a wave of Covid cases that could overwhelm the healthcare system, reducing consumption and production in the process,” Zhuang said.

Already, the rapid spread of the infection has forced many people into lockdown, emptying shops and restaurants. Factories and companies they also had to close or cut production as more workers fell ill.

People line up to buy free ibuprofen tablets to reduce fever at the flagship store of a national pharmacy chain in Hangzhou, east China's Zhejiang province, Dec. 28, 2022.

“Living with Covid will be more difficult than many think,” analysts at Capital Economics said.

They expect China’s economy to contract by 0.8% in the first quarter of 2023 and rebound in the second quarter.

Other experts also expect the economy to recover after March. In a recent research report, Economists at HSBC had forecast a contraction of 0.5% in the first quarter, but growth of 5% overall for 2023.

China’s haphazard reopening isn’t the only factor driving the economy. In 2023, experts will continue to watch how policymakers try to fix the ailing real estate sector, which accounts for about 30% of the country’s GDP.

Crisis in the industry – when several high-profile developers start in late 2021 they haven’t paid their debts — delayed or halted construction of pre-sold homes across the country. It triggered to a rare protest This year, by home buyers who refused to pay off mortgages on unfinished homes.

Beijing did a number of attempts to save the sector – including opening 16 point plan to ease the credit crunch last month – the statistics still paint a bleak picture.

In the first 11 months of this year, property sales decreased by more than 26% by value. Investment in the sector decreased by 9.8%.

Senior leaders at a key policy meeting earlier this month promised to focus on improving the economy next year, they suggest they will implement new measures that will improve the financial position of the property sector and boost market confidence.

“The measures announced so far are not enough to create a turnaround, but policymakers have signaled that more support is on the way,” Capital Economics analysts said.

“That should reassure homebuyers enough to drive up sales, perhaps by the middle of next year.”

A potential global recession It is another major concern that will shape China’s economic landscape in 2023.

There was trade is getting stronger Much of China’s economic growth earlier this year was fueled by exports, rising commodity prices and a weak currency.

But in recent months, China’s trade sector, which accounts for about a fifth of GDP and provides 180 million jobs, has begun to show cracks in the global economic slowdown.

Last month, shipments from China fell 8.7% from a year earlier, worse than October’s 0.3% decline. This is the worst performance of the Chinese economy since February 2020 stood close against the backdrop of the initial coronavirus outbreak.

Countries around the world are facing recession as policymakers continue to raise interest rates to combat rising inflation.

“[China’s] Exports have already recovered much of their pandemic-era boom,” Capital Economics analysts said.

“But the looming global recession means they are likely to fall further over the next few quarters.”

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