China’s Central Economic Work Conference took place last week and this is one of the most important events of the year in terms of giving the public an indication of future plans. Beijing promised to “forcefully revive market confidence” in contrast to last year’s “revive the confidence of market entities” – so a little more oomph.
Growth is squarely at the top of the agenda, but pragmatic caveats around fiscal sustainability (the first time that’s ever been mentioned), local government financing and inflation all suggest no big bazooka!
If this were a normal cycle, the recession call would be relatively straightforward. However, for the last three years, China (the world’s second largest economy) has endured growth-crushing lockdowns which today are ending just as the Chinese government leans more heavily on the stimulus pedal. So a big question for investors is: will China’s growth be enough to offset weakness elsewhere and avert a global recession?
It is possible, but I suspect it will not be the base case and for this reason I anticipate the first half of 2023 to be just as volatile.
The sudden switch to an unplanned and largely unprepared reopening could mean delayed recovery. Eastern China is the largest contiguous high population density area on earth and millions of China’s migrant workers live in cramped dormitories where the potential for contagion is sky-high. Cases are therefore likely to soar initially, thus keeping consumer confidence low and limiting spending on social activities.
Countries that transitioned from low caseloads to living with COVID generally saw little pickup in mobility until their reopening waves of infection had passed and with China having much lower vaccination rates and fewer hospital beds than many, I suspect until infections have passed pent up demand will not be unleashed.
2022 has certainly been an eventful year, which has presented many challenges, however I do hope that you are now able to take some time to relax and enjoy the festive season with family and friends. The outlook for 2023 may include many uncertainties, but out of this will come opportunity and we look forward to sharing this with you as the year unfolds.
On behalf of the whole team – Merry Christmas and prosperous and very happy New Year to everybody.