20230221-招银国际-China_Macro_Monitor__A_nonlinear_recovery_16页_1mb

China Macro Monitor Summary

Core Content

China's economy is experiencing a nonlinear recovery driven by economic reopening, credit policy loosening, and a pro-business policy shift. The recovery is uneven across sectors, with some areas showing rapid improvement while others face lingering challenges. The document provides forecasts for 2023 and 2024 GDP growth, inflation trends, and sector-specific performance indicators.

Main Views

Economic Recovery

• GDP Growth Forecast: Revised up to 5.4% for 2023 and maintained at 4.9% for 2024.
• Nonlinear and Unbalanced Recovery: The recovery is uneven, with service consumption rebounding quickly while private investment and housing market show a more gradual and fluctuating path.
• Consumer Behavior: Despite a rapid recovery in service consumption, consumer confidence remains weak, with households continuing to repay mortgages and increase savings. This indicates a gradual resumption of consumption.
• Inflation Trends: Core CPI growth is expected to remain moderate, with a slight rebound in the second half of 2023. Residential CPI has been declining due to weak employment and income conditions.
• Reflation Pressure: The reflation pressure is moderate, with some service sectors (e.g., air transportation, hotel & recreation) seeing demand outpacing supply. However, commodity inflation is expected to decline due to global economic slowdown and Fed tightening.

Housing Market

• Nonlinear Recovery: The housing market is expected to see a first wave of recovery in the next few months due to releasing depressed demand and stabilizing prices in tier one cities. However, the recovery pace may slow in the future as postponed demand is exhausted and policy expectations change.
• Sales and Investment: Commodity building sales and property development investment are expected to drop by 7.5% and 5% in 2023, following significant declines in 2022.

Liquidity and Credit Policy

• Accommodative Policy: The liquidity and credit policy will remain accommodative this year. However, the possibility of further credit loosening may decline in the near term due to stronger-than-expected new loans and recovery in the second-hand housing market.
• Monetary Indicators: M2 growth is expected to decline from 11.8% in 2022 to 9.5% in 2023, indicating moderate liquidity conditions.

Key Information

GDP and Inflation Projections (2009–2024)

Sectoral Performance

• Agriculture: Growth has remained relatively stable, with a slight decline in recent months.
• Industry & Construction: Improved slightly after the CNY holiday, but construction activity is weaker than expected.
• Service Sector: Strong recovery in transportation, catering, travel, accommodation, recreation, clothing & footwear, cosmetics and personal care.
• Private Capex: Slow to recover due to weak consumer confidence and uncertainty in the labor market.
• Infrastructure Investment: Likely to slow in the near term.
• Factory Activity: Gradually improved after the CNY holiday, with moderate growth expected.

Consumer Behavior

• Consumption Recovery: Shows bright spots in service consumption, but underlying uncertainty remains due to weak consumer confidence.
• Household Savings: Increased as mortgage repayments continued.
• Core CPI: Mild improvement, but durable consumption and residential CPI growth remain weak.

Exports and Imports

• China Exports: Expected to drop by 3.5% in 2023 after rising 7.1% in 2022.
• US Recession Risk: Persistent, with inverted yield curves and resilient retail sales indicating potential for a recession.
• US Inflation: CPI and PPI increased in January, showing persistent inflation.

Monetary Conditions

• M2 Growth: Expected to decline to 9.5% in 2023.
• Liquidity: Remains stable, with money market rates rising slightly due to increased liquidity demand.
• Credit Policy: Accommodative, with RMB loans and social financing showing positive growth in the early months of 2023.

Policy Outlook

• Pro-business Policy: Expected to continue in the next two years due to economic challenges.
• Local Governments: Focused on boosting GDP growth and attracting capital.
• Private Entrepreneurs: May take time to restore confidence and labor demand.

Conclusion

China's economy is on a nonlinear recovery path, with service consumption leading the rebound, while housing, durable consumption, and private capex show a gradual and fluctuating recovery. Liquidity and credit policies remain accommodative, and GDP growth is expected to slow down in the coming years. The US economy shows recession risk, and global commodity inflation is expected to decline due to Fed tightening and global economic slowdown.