The bank raised its projection to 5.4% growth from 5%, expecting that mobility and economic activity will rebound to the levels seen in June and July of this year by the end of the first quarter, economists including Robin Xing wrote in a note on Tuesday. They expect a continued recovery to above pre-pandemic levels through the rest of 2023. 

While economic growth will suffer some near-term pain at the start of the year as Covid infections peak and disrupt production and consumption, risks to the supply chain are likely to be manageable compared to how Covid lockdowns hampered operations, the economists wrote. 

A “full-court policy press for growth” will also take shape, they added. 

“From our perspective, policymakers are taking concerted action to lift growth across all fronts,” the economists wrote. “This is the first time since 2019 where domestic macro policies and Covid management are aligned in supporting a growth recovery, rather than acting as countervailing forces.”

Morgan Stanley’s upgrade comes as other banks have also revised their forecasts for China’s growth upward. 

Australia & New Zealand Banking Group lifted its forecast for 2023 growth to 5.4% in November. Nomura Holdings raised its estimate to 4.8% earlier this month. The consensus estimate for 2023 growth is 4.8%, according to a Bloomberg survey.

The Chinese Academy of Social Sciences, a state-run think tank, has forecast China’s economy will expand by 5.1% next year, according to a report by local media 21st Century Business Herald. The country should set a growth target at above 5%, CASS researchers said in a report. 

Senior Chinese officials are debating an economic growth target for next year of around 5%, Bloomberg News reported earlier this month.

Authorities may add more fiscal stimulus to spur infrastructure investment next year. 

The quota allocated for new special local government bonds – a key source of infrastructure funding – may exceed 4.4 trillion yuan ($632 billion) in 2023, according to a report by China Securities Journal on Wednesday that cited Kuang Peiqin, an analyst at Zheshang Securities Co. That would top 2022 levels.

‘Rapid and explosive’

Meanwhile, an analyst says China seems to be embracing a fast and explosive Covid reopening.

Bloomberg Intelligence’s chief pharmaceutical analyst, Sam Fazeli said it’s an approach that’s baffling observers given the vast country’s vulnerabilities.

“Logic doesn’t seem to apply here,” Fazeli said in a Bloomberg TV interview. China’s mindset since pivoting away from the Covid-Zero containment approach is “there’s not so much we can do, we’ve done the best we can. We’ve got the blueprint for what the West did and what happened, so let’s just let it rip – which is what I think is going on,” Fazeli said. 

Since signalling a landmark shift away from Covid-Zero just a week ago, China has dismantled most of its internal restrictions, casting aside the stringent playbook used to eliminate the virus for the past three years. 

The rapid reversal is resulting in an eruption of cases, particularly in Beijing where the once vast PCR testing apparatus appears to have been abandoned. The spread is so significant it’s rendered official Covid statistics all but meaningless, and seen hospitals in the capital already overwhelmed. 

The unexpected shift – most economists were expecting a gradual, controlled exit from Covid-Zero – is raising questions given China is in winter, its elderly vaccination rate is still well below other countries and the country’s healthcare system is under-resourced. It’s unclear whether China has had time to stockpile antivirals and other contingencies needed to handle what top Covid adviser, Zhang Wenhong, called a “massive” looming outbreak. 

Just 40% of Chinese over the age of 80 have had a Covid booster, well below the levels seen in other countries that reopened after following the Covid Zero or elimination approach. To limit deaths, boosters are “absolutely needed” in China, Fazeli said. 

“A big push is needed here to get people to roll up their sleeves,” he said. 

China could see some 5 million people hospitalised and up to 700,000 deaths, Fazeli said on Tuesday. “It depends on people’s behaviour.” BM/DM