China Growth - Curb Your Enthusiasm?
06 March 2023
Read Time 2 MIN
China Rebound
China’s growth expectations for 2023 are now the highest in 12 months (5.3%), but further upgrades might be less forthcoming after the surprisingly conservative growth target (around 5%) set up by the National People’s Congress (NPC) over the weekend. As regards the policy framework to achieve the target, some aspects look comparable to the last year’s numbers (the adjusted budget deficit, local government special bond quota – also with adjustments). The NPC reemphasized support for domestic demand, the housing sector, and private companies. But it’s clear that authorities do not want to overstimulate the economy – anything related to the pandemic-related rise in leverage perhaps?
EM Growth
China’s growth rebounding to 5%+ this year is still good news for many emerging markets (EM), which are arguably less correlated with risks like higher U.S. policy rates. And this includes positive growth spillovers, which we expect to be reflected in the updated GDP forecasts published by the IMF around the Spring Meetings in April. In the meantime, the consensus projections keep improving. The share of positive growth revisions in the Bloomberg consensus survey (101 countries) rose to 30% from 8% in December, and the share of large growth downgrades dropped from 50% to 7% over the same period. The composite EM PMI (Purchasing Managers Index) is now well in expansion zone, and the PMI momentum in most EMs showed improvement in the past 3 months – potentially positive signals for carry trades and sovereign spreads.
EM Disinflation
Chinese authorities’ measured approach to policy stimulus might also lower a risk of “runaway” inflation pressures that plagued China’s EM peers in the past year and a half – albeit we remain vigilant. China is currently the only major EM, where headline inflation is below the target (see chart below). However, “revenge” spending could be a powerful inflation driver, pushing peak core inflation higher and making it stickier than expected – even in EM’s disinflation poster kids, like Brazil. This week brings a big inflation data dump in EM, including Mexico, Brazil, the Philippines, Thailand, Hungary – and China. Are we going to get another “underwhelming” China’s surprise? Stay tuned!
Chart at a Glance: EM Inflation Still Far From Official Targets – Except in China
Source: Bloomberg LP
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