China Economic Outlook
Annual economic growth slowed to 2.9% in Q4 on softer expansions in industry and services, as tighter Covid-19 restrictions in October–November and an explosion of virus cases at the end of the quarter hurt momentum. Moreover, an over 6% year-on-year decline in merchandise exports suggested weakening external demand. More positively, the economy appears to be recovering briskly so far this year, thanks to the removal of restrictions in December and the rapid subsiding of virus cases. Both the manufacturing and the non-manufacturing PMIs surged in January, and mobility data is far higher this year than in the same period in 2022. That said, vehicle sales slumped in January due to the expiration of fiscal benefits. In addition, the housing recovery seems sluggish, with ongoing annual declines in home sales and mortgage loans so far in 2023.
Consumer inflation rose to 2.1% in January from December’s 1.8%. Producer prices fell 0.8% year on year in January, following December’s 0.7% drop. Both consumer and producer prices are seen picking up from current levels later this year. Still, they should remain muted nonetheless due to a stronger yuan, easing supply disruptions and softer external price pressures.