China’s 2023 GDP forecasts twisted and turned as prognosticators puzzled over country’s future

Institutions publishing predictions of China’s economic growth had to alter their estimates frequently in 2023
After China lifted its pandemic lockdowns, the explosive recovery many had expected did not take place, forcing rapid-fire changes

China GDP

Ralph Jennings

Published: 11:00am, 17 Nov 2023

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In a year that began with hopes for a barnstorming recovery but now seems to have come to a more uncertain end, world financial institutions wavered dramatically in their forecasts for China’s economic growth as optimism buckled under the weight of concerns like unemployment and an unstable property market.

Predictions about the fate of China’s gross domestic product (GDP), a flagship figure that steers global investment and trade, have bobbled to a greater degree than in pre-Covid 2019, according to historic data gathered by European consensus forecast provider FocusEconomics.

“It is always hard to make precise forecasts, but it is even more so lately,” said Liang Yan, a professor and chair of economics at Willamette University in the US state of Oregon. “First, coming out of Covid and lockdown has created much uncertainty and behavioural changes.

“With the sluggish real estate market and weak profit expectations, the lack of confidence weighed on the economy,” Liang added. “Second, policy changes have been adaptive rather than proactive. Policymakers put in some measures, wait to see the effects, then decide on the next step. This means the economy may seem to fare poorly, then improve somewhat, then weaken again, then more policy support to push it forward.”

For 2019, fluctuations in the roughly 60-institution consensus for the world’s second-biggest economy were within just 0.1 percentage point, hovering close to an average 6.3 per cent growth projection. Actual growth came in at 6.1 per cent.

The International Monetary Fund’s 2023 estimates started this year at 5.2 per cent, a figure that spanned three forecasts from January through July before dropping to 5 per cent in October. Projections rose to 5.4 per cent this month after China announced a 1 trillion yuan bond issue for local governments.

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In 2019, the United Nations financial agency made forecasts in a tighter range: 6.2 per cent growth in January, 6.3 per cent in April, 6.2 per cent again in July and 6.1 per cent in October.

Forecasters ascribe this year’s ups and downs to on-again, off-again data releases from Beijing – export volume, for example, and youth unemployment. Unease in the property market has also made a mark.

“A lot of this view is tied to policy announcements,” said Nick Marro, lead analyst in global trade with The Economist Intelligence Unit in Hong Kong. “Lingering volatility stemming from the pandemic, even a year after China’s reopening, has also complicated forecasting.”

The Economist Intelligence Unit raised its estimate on Tuesday to 5.5 per cent, up from 5.2 per cent, after a late October announcement from Beijing linked to expanded infrastructure spending in the final three months of the year. Local governments have been allotted an all-time-high quota of 3.8 trillion yuan (US$524.4 billion) in bonds for this year to finance major construction projects.

Earlier in the year, the Economist Intelligence Unit had placed its bets on 5.7 per cent growth but “softened” that to 5.2 per cent in mid-2023 “after second-quarter growth was so disappointing”, Marro said.

Second-quarter data pointed to an uneven post-pandemic economic recovery beset by ailing private sector confidence, record high youth unemployment and fractures in the property market. Lockdowns had hampered 2022 growth, and the roaring comeback many expected failed to materialise.

On the property front, China’s government has tried since 2020 to reduce systemic risk from overleveraged developers by cutting the weaker ones off from loans and bonds. Some of the country’s largest developers have defaulted on their payments.

China’s export-led, investment-driven economy of about US$18.1 trillion had grown close to 10 per cent, often higher, every year from 2002 to 2011. That pattern appears to have changed.

Moody’s Analytics raised its GDP forecast in November to 5.2 per cent from a flat 5 per cent because of a midyear budget boost by Beijing and a 1 trillion yuan bond issue, assistant director and economist Heron Lim said. Those measures, he said, “changed our thinking”.

But now his team is unclear how to proceed.

“What we are waiting for more clarity on in the meantime is whether China will expand its budget deficit for 2024 to support growth, and whether the People’s Bank of China will signal more cuts to domestic interest rates once the US Fed starts its own rate cut process that we expect in June 2024,” Lim said.

Singapore-based DBS Bank forecasts 5 per cent growth this year – down from 5.5 per cent at the start – but expects some improvement in the future, bank economist Nathan Chow said.

“Ongoing investments in new economic sectors should sustain overall expansion, albeit at a more moderate pace than during China’s investment-led boom years,” Chow said.

“Fiscal and monetary policies will contain unemployment and gradually lift consumer sentiment. As confidence improves, large household deposits accumulated in recent years may flow towards spending.”