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A bright picture of 2023 growth in Asia has just emerged from the International Monetary Fund (IMF). Responding to a surge in Chinese consumer spending now that Covid restrictions have lifted, the analysts at the Fund have revised up their real growth expectations for China and emerging Asia generally. This enthusiasm nonetheless seems wholly unwarranted. Though there can be little doubt that China’s reopening will act as a spur to growth there and elsewhere in Asia, this forecast seems to dismiss the ill effects of inflation and fails entirely to consider the drag on Chinese and Asian exports from tightening monetary policies in the west.
The IMF’s figures are striking. China has received the most dramatic upgrade. Whereas last October, the Fund looked for 4.4% real growth in 2023, it now expects an expansion of 5.2%. The revisions are more modest for the rest of emerging Asia but across the board the expected growth can only be described as robust. Analysts at the IMF have also revised up growth expectations for Japan, which they now expect to expand 1.8% this year, up from the 1.6% expectation in the previous set of forecasts. Otherwise, the IMF has downgraded its expectations for Asia’s developed economies. Singapore, for instance, is expected to expand only 1.5%, down from 2.3% in the October forecast. South Korea is expected to grow 1.7%, down from 2.0% previously. For Asia as a whole, the IMF tallies real growth to 4.7%, up slightly from the 4.3% offered last October. For less developed Asia, where the IMF groups China, it expects 5.3% real growth, up from 4.9% previously.
Throughout, this latest IMF report ties its upbeat picture to a Chinese consumption resurgence now that zero-Covid restrictions have lifted. Its authors point consistently to the surge in Chinese travel that occurred immediately on the economy’s reopening and the consumer spending surge that accompanied it, mostly on hotel bookings, services, and luxury goods. Noting that most Asian trade occurs among the economies in the region as well as the strong trade and tourism linkages between China and the rest of Asia, they see the China surge spreading.
Few would dispute the recent evidence of a surge in Chinese consumer spending or the validity of the linkages to which the IMF report points, but these considerations fail to cover the full economic picture for 2023. They miss, for instance, the economic drag from the rise in Covid cases that has accompanying China’s abandonment of its zero-Covid policies. Similarly, this bright picture overlooks questions about the sustainability of the initial consumer surge, how it is concentrated almost entirely and not in the rest of the economy. The upbeat forecast also overlooks the problems plaguing China’s important property development sector, and the continued steep decline in housing sales that is going on in China. Similarly, the IMF forecast fails to account for the drop in real estate values, where most ordinary Chinese have the bulk of their wealth, and how it has imbued considerable caution among most Chinese, except, of course, the very wealthy.
The IMF also seems to ignore what is happening in Japan and the west. Both the United States and Europe, as well as Canada, Australia, and New Zealand have all pursued counter-inflationary monetary policies that have restricted credit and raised interest rates. They all seem bound to intensify these policies in coming months. Though these actions will not necessarily bring on recession in 2023, they are likely to do so and will at the very least slow growth. Such a slowdown in these major economies – much less recession – will definitely crimp China’s still vital export sector. The World Bank, noting these trends, stands in contrast to the IMF and has recently reduced its real growth forecast for the global economy from 3.0% not too long ago to only 1.7%.
And then there is the increasing hostility show by Washington toward China trade and, to a lesser extent also shown by the European Union (EU). In just the last few months, Washington has passed noteworthy pieces of legislation to curtail trade with China and investment in China. The trade restrictions, besides continuing tariffs, have focused mostly on technology, semiconductors in particular, but that is no small part of the picture. Investment restrictions that have just recently gone into effect will enlarge the ill effects of the trade restrictions on China. The EU has shown less overt hostility than Washington, but it, too, has exhibited a willingness to take counter measures to what it clearly considers Beijing’s unfair trade practices.
Meanwhile, American and European business, independent of their governments, have begun to rethink their former reliance on China trade. Their reasons have to do with supply chain resiliency, disenchantment about China’s reliability as a place to source, rising costs, and long-standing objections to Beijing’s cavalier treatment of patent and copyright protections. Combined, these considerations have culminated in some dramatic reversals. In just the last few months, Apple and Samsung, as well as Volvo and Adidas have announced that they will move production from China, sometimes to elsewhere in Asia and sometimes further afield. And this is only a partial list.
As if to confirm the effects of these trends, Beijing’s customs bureau has recently reported steep declines in China’s export volumes. Last December, the most recent period for which complete data are available, the bureau recorded a 9.9% drop in overall exports from levels of December 2021. With restraint in the American, European, and Japanese economies, this trend is hardly likely to reverse any time soon, thought it will no doubt moderate. It is equally unlikely that China’s luxury spending trend can overcome these trade effects even if it lasts, which itself is open to question. Chances are good then that the IMF will publish a downward revision in its projections soon.