Economist at UOB Group Ho Woei Chen reviews the recent prints from PMIs in the Chinese economy.

Key Takeaways

“Both the official manufacturing and non-manufacturing PMIs are back in expansion (defined as a reading above 50) in Jan for the first time in four months, having rebounded from their lowest since Feb 2020 just a month ago.”

“Activities have recovered swiftly after China relaxed its zero-Covid policy and reopened its borders to international travelers from 8 Jan. The sharp jump in the non-manufacturing PMI is consistent with anecdotal evidence of a strong boost in consumption spending during the Spring Festival holidays (21-27 Jan).”

“With China largely avoiding a further surge in Covid-19 infections following the Lunar New Year holidays, this should pave the way for stronger improvement in consumption and a rebound in GDP growth in 1Q23. However, we think the consumption recovery still faces some headwinds from falling global demand, a weaker jobs market and further downturn in the real estate market. These factors will affect income growth and household wealth, thus the propensity for spending may weaken after the initial bounce.”

“We retain our cautiously optimistic outlook for China’s GDP growth at 5.2% this year with the potential for an upgrade should China’s consumption continue to improve and the drag from the real estate market eases while global economy achieves a soft-landing this year.”