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ING global economic outlook 2023 December 2022 Our 3 calls for China The outlook for China's economy next year will depend on when Covid measures are eased and international borders are reopened. Recession in the US and Europe are Iris Pang additional hurdles, while fiscal spending could provide some support Chief Economist, Greater China [email protected] Xi Jinping, general secretary of the Communist Party of China - 30 November 2022 1 Covid measures will ease only gradually in 1H23, easing further in 2H23, timing of full reopening is uncertain There are likely downside risks associated with the higher number of Covid cases, which have become more widespread across the country in the fourth quarter. We expect this pattern to continue at least until the first quarter of next year. Even if some local governments relax Covid measures, the high number of cases will affect both retail and production adversely. The timing of a further relaxation of Covid measures is important to the forecasts. We expect the government to gradually shift the focus away from the number of cases in order to avoid a further economic slump. A significant relaxation of Covid measures could happen in the second half of the year after gradual, piecemeal easing in the first quarter. A full reopening may only happen when the government is confident that Covid cases will no longer put pressure on the hospital system. This is more likely to be an event for 2024 than 2023. The economy should see faster growth in 2024 and 2025 when China reopens, construction of unfinished homes has been completed, and external demand recovers slightly. 2 External demand will be weaker in 2023 due to recession in the US and Europe The US and Europe have been the number two and three export destinations for China. Though not a new stress to the economy, external demand should deteriorate as the US and Europe are likely to be in recession in the first half of next year. According to our forecasts, the timing of the recession will not overlap with the peak export season of the fourth quarter. But whether export demand can recover after the recession is still in question. China's trade with ASEAN - which is the number one export destination for China - and the rest of Asia also depends on the consumer market in the US and Europe. As such, both exports and imports should see an annual contraction in the first half of 2023. As China recovers, and the US and Europe emerge from recession around the 37

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