International institutions are optimistic about a broader recovery in China's economic growth this year, given the recent strong readings in industrial production, consumption and exports, according to latest reports.
Investment bank Morgan Stanley said in a report released on Sunday that China's GDP growth is expected to come in at 9 percent for this year and 5.8 percent for 2022, with a revival of private consumption and manufacturing capital expenditure offsetting the countercyclical tightening effects.
On a sequential basis, the country's growth rate will peak between 6.5 percent and 7 percent on a seasonally adjusted annual rate basis in the second quarter of the year, with a more modest but sustained 5.5 percent to 6 percent SAAR in the second half of this year and next year. Such a growth rate is in line with the potential GDP growth trend, as growth mix rebalances toward domestic demand amid a normalization in exports, according to Morgan Stanley.
Robin Xing, chief China economist of Morgan Stanley, said on Tuesday that China's cyclical recovery in manufacturing capex will even outpace the pre-COVID levels, thanks to the robust external demand.
This echoed the official data released on Monday in which the National Bureau of Statistics said that China's value-added industrial output rose 9.8 percent year-on-year in April. During the first four months, fixed-asset investment in the manufacturing sector also jumped 23.8 percent on a yearly basis.
Xing also said that China's consumption is returning to the pre-epidemic levels, which is a result of continued labor market recovery, the release of precautionary savings and stable domestic epidemic control.
China's continuing growth momentum has provided room for gradual policy normalization to stabilize the macro leverage ratio, Xing said, adding that he expects broad credit growth to soften to 11 percent on a yearly basis by the end of this year.
Going forward, the country is likely to focus more on long-term sustainability, with more efforts on facilitating urbanization, upgrading the manufacturing sector, renminbi internationalization and green growth, Xing said.
Lu Ting, chief China economist at Japanese bank Nomura, said in a research report that the strong export growth will continue to bolster industrial production in May. Fixed asset investment will also grow in May, thanks to the delayed impact of infrastructure stimulus last year. Faster retail sales growth can also be expected in May, as China experienced further recovery of in-person services over the Labor Day holiday, he said.
As other major economies are gradually recovering on the back of increased vaccinations, external demand may continue to support overall industrial production for some time, said Chen Jingyang, an economist with HSBC. A full recovery in household demand still holds the key to more balanced growth, she said.
"After stripping out the base effect, we believe that China is still running below full speed, which means a negative output gap and less risk of overheating. This should give Beijing more room to maintain an accommodative policy stance for longer term and focus on providing support for the weak links, which are mainly small businesses and households, in the economy," said Chen.