China”s economic growth driven by consumption, manufacturing investment and resilient exports is expected to strongly recover next year, leading international financial groups shared their positive forecasts recently.
Their projections on the world’s second-largest economy’s GDP growth ranged from 7.5 to 9 percent in 2021, the fastest pace at least since 2015. The supportive policies, including monetary and fiscal measures that were launched at the peak of the coronavirus pandemic outbreak, will gradually turn into a normalized status as the coronavirus pandemic has been well controlled domestically.
Goldman Sachs shared a relatively conservative forecast among global financial giants with prediction that China’s GDP growth, on a yearly basis, is likely to rebound to 7.5 percent in 2021, up from projected 2 percent this year.
The recovery will be mainly driven by household consumption and manufacturing investment. Its exports, in the meantime, are expected to stay resilient, it said.
“In China, monetary and credit policies are already normalizing,” Shan Hui, chief China economist at Goldman Sachs, told China Daily.
Her view was backed by the recent rise of the interbank market’s seven-day repo rate, a gauge of prices of loans borrowed between commercial banks, which is mostly back to pre-COVID levels. The credit growth has also slowed from the peak in the March-to-May period.
Looking into the near future, Shan said that China’s policy rates are likely to stay stable, while the credit growth may decelerate further.
In terms of fiscal policy, the Goldman Sachs economist predicted the government’s on-budget fiscal deficit to narrow from 3.6 percent of GDP this year to 3 percent in 2021, although local governments’ maturing bonds and refinancing demand are likely to pick up next year.
“We may see more refinancing bond issuance by local governments and some of the financing gap may be plugged by transfers from the central government,” said Shan. “At the same time, cyclical upturn is helpful for government revenues and local governments have been asked to cut spending when possible.”
Last week, another US-based investment bank Morgan Stanley offered a more positive forecast on China’s 2021 GDP growth at 9 percent, led by a strong recovery in private consumption and global demand, with policy stimulus being phased out.
Robin Xing, chief China economist at Morgan Stanley, said that private consumption could emerge as the key growth driver in the coming months, with a release of excess savings of Chinese residents and the overall recovery of domestic job market.
A stronger global demand and reduced risks of trade tensions would boost manufacturing investment, outweighing slower construction activity and a slightly narrowed surplus of trade of goods and services, according to Xing.
“Policymakers will likely normalize credit growth and its fiscal stance in 2021 with a full recovery in the labor market and deployment of COVID-19 vaccines in major economies,” he added.
Economists also predicted that the normalization of China’s monetary and fiscal policies will further elevated the interest rate differential between China and the United States, which is one of the drivers of a further appreciation of renminbi and stronger foreign exchange inflows into China next year.
Other major economies, however, are likely to maintain monetary easing and fiscal stimulus to tackle the COVID-19 shocks. And the US and European Union central banks may re-raise their policy rates as early as in 2025, Goldman Sachs’ economists said.