China’s economy likely to rebound earlier than previously expected

Commerzbank Senior Economist Tommy Wu thinks China’s economy will likely rebound earlier than previously expected, thanks to the sudden Covid reopening.

Government looks keen to prioritize economic recovery in 2023

"First, the speed of outbreak is probably much faster than previously expected, with most people having or eventually will get infected in a matter of weeks after the U-turn in Covid policy made in early December. Currently, cities are battered by infections. But infections will spread, as many households will take advantage of the Chinese New Year holiday, which starts on 22 January, to travel back to their hometown or for leisure."

"Next, once the majority of the population get infected by Covid, or at least the perception of that happening given that there’s no reliable data available, people will feel comfortable to come out and spend again. This will facilitate a full-blown recovery. Economic activity could see a significant recovery in Q2, or even as soon as March, much earlier than previously expected by us and the markets."

"It also seems unlikely that the authorities will reimpose controls despite a spike in infections. The government looks keen to prioritize economic recovery in 2023 and seems to prefer quickly getting over with the Covid situation to jump start the economy rather than dragging it out further."

"The abrupt U-turn of Covid policy, which is uncharacteristic of the Chinese government, poses an upside risk to our 2023 growth forecast which is currently at 4%."

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