Revising 2023 GDP growth to 5.5%

Key Points

• The 4.5%yoy growth in Q1 set 2023 Chinese economy off to a good start, with services industry benefiting most of the change of Covid-19 policy.
• March data indicated the pace of economic recovery was modest, but the recovery of property sector was still not solid: despite a surprisingly strong 10.6%yoy growth, retail sales only increased 0.15%mom (weaker than February’s 0.67%mom); FAI declined by 0.25%mom; both new floor started and construction contracted by a larger degree in year-over-year term this March.
• The 0.7%yoy March CPI inflation stirred up worries of deflation in China, we think this worry is excessive, as Chinese economy is still in an early recovery phase, monetary/credit and fiscal condition are expansionary, and some prices more relating to domestic demand, i.e. ferrous metal price, non-ferrous metal prices and CPI services prices, actually improved sequentially in March.
• We revise up our 2023 GDP growth forecast from 5.1%yoy to 5.5%yoy, due to higher-than-expected Q1 growth number. And a gradually improving endogenous growth drive induced by existing (and possible new) macro policies down the road would help to ensure year-over-year growth acceleration in Q2-Q4 for China.
• We expect no cut on 1 year MLF and/or 1 year LPR in near term, as China is still in recovery phase and Fed still hasn’t yet ended its hiking cycle. USD/CNY: we expect yuan to remain in a narrow range in near-term. We maintain our view of USD/CNY to reach 6.75 by the end of Q2, 6.65 by the end of Q3 and 6.55 by the end of Q4.

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RETAIL SALES MOMENTUM WEAKENED IN MARCH

Source: CEIC, MUFG GMR

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EXPORTS TO ASEAN IMPROVED IN MARCH

Source: CEIC, MUFG GMR

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MUFG PERIOD-END FORECASTS

Source: Bloomberg, MUFG GMR