Two scenarios put 2023 GDP growth at 7% and 5.4%

Employees work at an assembly line of the North China base of FAW-Volkswagen in north China's Tianjin, Jan 11, 2023. [Photo/Xinhua]

Overall, we believe China will see a robust economic rebound in the year of 2023, with such an assessment based on three perspectives.

First, most of the COVID-19 containment measures were largely removed by the end of 2022. The low growth base in 2022 will likely lead to a robust rebound and growth is likely to become resilient this year.

Second, policywise, the Central Economic Work Conference in December made clear that keeping economic growth stable will be the top priority this year. We expect the deficit-to-GDP ratio to exceed 3 percent this year as part of an eased fiscal policy stance and we expect three or more cuts in the reserve requirement ratio as part of an eased monetary policy. Support for small and medium-sized enterprises will be enhanced, while more support has been given to the platform economy.

Third, in terms of external demand, despite sluggish global growth, countries are likely to fine-tune their fiscal and monetary policies to achieve a balance between curbing inflation and maintaining adequate economic growth. We expect that the global GDP will see a year-on-year growth of above 2.5 percent this year and global trade will grow by at least 3 percent. China's global trade typically rises faster than global economic growth.

Based on these three perspectives, we believe that China's economy will see robust growth this year.

However, the real question is, how robust will this rebound be? One of the key factors impacting the intensity of the rebound is how long it will take for people's lives to return to a state of normalcy. This is extremely critical. If it takes more than half a year to see people's lives returning to normal, growth is still likely to be sluggish.

Looking at things globally, countries vary in terms of the amount of time they take to get people's lives back to normal. Many countries saw an economic rebound within a quarter or two after they lifted their pandemic-related restrictions. Overall, the "return to normalcy "period for the majority of countries has been within five months. This is the current benchmark that we can use as a reference, and it's likely to be the same for China.

Taking every possible scenario into consideration, we will analyze two possibilities. Starting from December 2022, with the easing of containment measures, one scenario involves people's life returning to normal within three months and things getting better in February. The other scenario is that it will take five months, with April marking a return to normalcy.

In the first scenario, growth will bounce back in the first quarter. In the second scenario, growth will rebound starting from early in the second quarter. Compared with other economies, China's economic rebound will not soon diminish after a quick start. On the other hand, it is likely to accelerate quite robustly.

In the first scenario, early in the current quarter, particularly around Spring Festival (late January), the nation is likely to see a peak in infection numbers. With a relatively high growth base compared with the first quarter of 2022, year-on-year growth for the first quarter of 2023 is likely to come in at 2.5 percent and accelerate to 10 percent in the second quarter.

The growth rate for the third and fourth quarters will be somewhere around 6.8 percent and 7.8 percent, respectively. Our expectations are that in the first scenario, GDP growth for 2023 will be around 7.0 percent.

In the second scenario, the GDP will contract by 1 percent in the first quarter. The economy will then quickly rebound and grow by 6.8 percent, 6.7 percent and 7.9 percent in the second, third, and fourth quarters, respectively. In such a scenario, we expect the country's overall GDP growth for 2023 to grow by 5.4 percent.

In these two scenarios, a 7.0 percent annual growth or a 5.4 percent annual growth is possible. The 5.4 percent recovery stands somewhere around China's potential GDP growth, which is between 5 percent and 6 percent. Such a growth rate can be seen as a "rebound recovery" as it will bring China's economic growth back to pre-pandemic rates. The 7.0 percent annual growth in the first scenario, then, can be seen as "revenge recovery".

Undoubtedly, realizing a 7 percent year-on-year growth will not be easy this year but we are hopeful. During the Jan 1 holiday weekend, places like Beijing, Shanghai, Shenzhen and Guangzhou, Guangdong province, began seeing some spending booms. At the same time, macroeconomic policies should be put into high gear to support growth and anchor market expectations.

The writer is chief economist of Chongyang Institute for Financial Studies at the Renmin University of China.