A faster reopening for China – but at what cost?

While China’s sooner-than-expected reopening has led some to pencil in a more robust rebound in 2023, we are more cautious. By acting before the economy is epidemiologically ready to open up, authorities have accelerated and amplified the disruptions associated with reopening.

What you will learn:

• While reopening has been swift, domestic demand conditions are starting from a much weaker starting point. Confidence and incomes are too frail for a quick recovery. And though authorities have turned encouragingly pro-growth, there are meaningful constraints to further policy easing.
• A hasty reopening is also likely to exacerbate strains on households, labour markets, and government finances, deepening the economic scars of three years of episodic outbreaks and lockdowns.
• Taken together, we have recently revised down our near-term growth forecasts, but lifted subsequent quarterly forecasts on a faster reopening. Overall, growth rebounds still to a below-consensus 4.2% in 2023, from 2.7% in 2022 (vs. the consensus’ 4.8% and 3.0%, respectively).