Macroscope | China economy: 2023 recovery on cards as Beijing starts shift from zero-Covid policy

China could be the economic surprise package in 2023. That suggestion will not resonate with investors who continue to have concerns both about well-publicised weaknesses in China’s property sector and how Beijing will chart a path away from zero tolerance of Covid-19 and towards pandemic management.

First, and in contrast to the situation in China, major Western economies have experienced upsurges in consumer price inflation in 2022 that have required substantive monetary policy responses in the form of markedly higher interest rates and quantitative tightening.

It is almost certain the Federal Reserve will raise interest rates in the United States again, most likely by 50 basis points on December 14. That will not be the last increase in this cycle, and even when the Fed does signal a pause, interest rates are likely to remain higher for longer. The US central bank would not wish to move to easier monetary policy until it is absolutely certain its efforts have been successful in driving down inflation.

Other Western economies face the same challenges as the US Federal Reserve and are also likely to keep monetary policy somewhat restrictive in 2023, but that is not the case in China. There is every possibility that as China continues to make efforts to address deep-rooted problems in the country’s property sector while simultaneously adjusting its policy on coronavirus, the People’s Bank of China will opt to retain accommodative monetary policy settings.