China’s economy ended the year on a low note, with declining business and consumer spending in December and more disruption expected in the first few months of 2023 as Covid-19 infections surge across the country. Official data showed that the decline in manufacturing worsened last month, while activity in the services sector fell the most it has since February 2020. A private survey by China Beige Book International suggests that the economy contracted in the fourth quarter of 2022 from a year earlier.
The lifting of strict Covid-19 controls in December led to a surge in infections in major cities, causing people to stay home. While the virus has likely peaked in Beijing, it spreads quickly across the country. It could disrupt activity in the first quarter, especially if there is a travel rush during the Lunar New Year holiday in late January.
Economists predict that China’s economy grew by just 3% in 2022. This follows a year of weak consumer and business sentiment, a slump in the property market, and a decrease in overseas demand for Chinese goods. Policymakers have pledged more fiscal and monetary support to aid the economy’s recovery in 2023. The Ministry of Finance said last week that fiscal spending would be expanded “appropriately” in 2023 using policy tools like the budget deficit. The central bank has also vowed to support domestic demand and maintain credit growth.
Stock investors have become more bullish for the new year as they bet that China’s reopening from Covid-19 controls, while chaotic to begin with, will eventually boost the economy and corporate profits. The Hang Seng China Enterprises Index, which tracks Chinese firms listed in Hong Kong, has surged 36% in the last two months. The index is expected to rebound in 2023 after three straight years of declines, a record losing streak since its inception in 1994.
In conclusion, China’s economy ended the year on a low note due to declining business and consumer spending in December. This is expected to continue in the first few months of 2023 due to a surge in Covid-19 infections. A private survey suggests that the economy contracted in the fourth quarter of 2022 from a year earlier, and economists predict that the economy grew by just 3% in 2022. The lifting of strict Covid-19 controls in December led to a surge in infections in major cities, causing people to stay home.
While the virus has likely peaked in Beijing, it spreads quickly across the country. It could disrupt activity in the first quarter, especially if there is a travel rush during the Lunar New Year holiday in late January. Policymakers have pledged more fiscal and monetary support to aid the economy’s recovery in 2023. Stock investors have become more bullish for the new year as they bet that China’s reopening from Covid-19 controls will eventually boost the economy and corporate profits.
