Men in face masks walk past a gap store in a shopping district as a new coronavirus outbreak hits the country on February 7, 2020 in Beijing, China.
Jason Lee | Reuters
BEIJING – Fitch Ratings this week raised its forecast for China’s economic growth over the next year, based on increased domestic demand and expectations for coronavirus vaccine use.
Fitch now expects China’s gross domestic product to grow 8% in 2021, compared to the rate forecast of 7.7% in September.
“This would be well above our estimate of China’s long-term growth potential of around 5.5%, but is quite achievable on such a low basis in 2020,” wrote Fitch analysts Brian Coulton and Pawel Borowski in the report published on Thursday.
The analysts pointed out that the data points to a significant recovery in Chinese consumption in recent months, particularly in the food service industry and other activities that involve social gatherings. The global economic environment is likely to improve in the second half of next year as more people are vaccinated, the report said.
Covid-19 first appeared in the Chinese city of Wuhan late last year. Authorities tried to stop the outbreak by closing more than half of the country in February. While the domestic spread of the disease stalled in late March, the virus had already started infecting tens of thousands of people around the world.
Fitch is forecasting global growth of 3.7% this year, slightly better than the 4.4% decline forecast in September. According to Fitch, global GDP is set to grow by 5.3% next year.
The world’s second largest economy is set to grow 2.3% this year, Fitch said after a 6.8% decline in the first quarter as a result of the coronavirus pandemic.
Given the fall in inflation and the strengthening of the yuan, Fitch analysts do not expect China to reduce incentives by raising its key interest rate.
Upgrading to 8% GDP growth next year is in line with other analysts’ expectations.
Nomura is forecasting growth of 9% for the next year after 2.1% in 2020. Natixis is forecasting growth of 7.8% for the next year.