China GDP: economy predicted to hit 2023 growth target, but action still needed to ensure long-term stability

China is anticipated to meet its economic target for 2023, according to a prominent governmental think tank. They predict a 5. 1% growth in the gross domestic product (GDP) for the fourth quarter. However, they also emphasize the need for stronger countercyclical policies to ensure long-term stability. The Institute of Economics at the Chinese Academy of Social Sciences (CASS) also projected that the world's second-largest economy grew by 4. 6% in the third quarter, a decrease from the 6. 3% growth in the second quarter. The economic growth is expected to be driven by the thriving service sector, despite the emergence of new domestic and external challenges. The Chinese economy is currently experiencing a period of favourable conditions for the service sector recovery, coupled with the headwinds of declining global demand for manufacturing products. Despite these challenges, the economic rebound in the second half of the year is still expected to ensure an annual growth of 5. 1%, meeting Beijing's growth target for 2023 of around 5%. China is expected to release its third quarter GDP data next week, along with key retail sales and industrial production data for September. However, the country is currently experiencing an economic slowdown as demand remains subdued. The slumping property market, debt-ridden local governments, and a bleak export outlook continue to erode confidence in the private sector. The optimistic estimate from CASS contrasts with many international investment banks, which remain sceptical about China's economic prospects as policymakers have refrained from large-scale stimulus to drive up short-term growth. The Beijing-based think tank also mentioned that youth unemployment should have peaked in July and started to stabilise after August. Unemployment among the 16-24 age group in China had surpassed 21% in June before Beijing halted releasing the data in August, citing the need to allow time for survey statistics to be 'further improved and optimised'. However, momentum for further recovery in the service sector could weaken next year, and improvements in overseas demand may be difficult if the global economic recovery remains sluggish. CASS emphasized the increasing necessity to proactively implement policies in advance to ensure the stable and healthy development of China's economy next year. If countercyclical policies can be timely implemented and take effect at the end of this year to the beginning of next year, it will be conducive to achieving the goals of sustained growth, stable employment, and stable expectations over a relatively extended period. More international investment banks have begun to revise up their estimates for China's economic growth in light of signs of improvement in economic indicators in August. JP Morgan and ANZ raised their 2023 forecasts in September to 5% and 5. 1%, respectively. Hang Seng Bank also said last week that their 2023 projection remained at 5. 3%, while UBS also said last week that China's third quarter GDP sequential growth likely stabilised. After China's manufacturing activity rebounded to expand for the first time in six months in September, economists at Mizuho said the positive momentum would continue into the fourth quarter, which will allow China to achieve its full-year growth target. However, continued weakness of property sales and investments are expected, despite stable industrial production growth and a rebound in retail sales, said Zhang Ning, senior China economist at UBS Investment Research, last week. Last week, the World Bank kept its 2023 economic growth estimate unchanged at 5. 1%, although it downgraded its forecast for next year by 0. 4 percentage points to 4. 4%.