BOC Research Institute released the 2023Q3 Economic and Financial Outlook on July 3. The Report reviews the global and China’s economic and financial performance as well as the global banking performance in 2023H1. It also provides an outlook on the economic and financial situations and the global banking trends in 2023H2.
In terms of the global economy and finance, the Report notes that 2023Q2 saw an eased global downturn as the inflation kept cooling across major economies, yet with increasingly divergent recoveries. The global service sector staged a solid recovery, versus a sluggish recovery in manufacturing and trade in goods. US and European central banks continued to hike interest rates, pushing the US Dollar Index (DXY) and US Treasury yields higher and triggering the reshoring of capital to the United States. Global stock markets showed notable regional disparities in performance. Looking ahead to Q3, global recoveries will remain divergent between services and manufacturing, and the continued tightening of global liquidity will have a significant impact on investment and financing, consumer spending and economic growth. Stock markets will likely remain range-bound amid the imminent reversal of the rate-hike cycle in the United States and Europe, expected continuation of global USD bond defaults and persistent uncertainty in the energy market. The Report also provides a special analysis on the progress and impact of global semiconductor policies, export changes in major Asian economies, progress and impact of SOFR-based USD interest rate benchmark reform and vulnerability of global non-bank financial institutions.
As for China’s economic and financial situation, the Report notes that in 2023H1, the fallout from COVID-19 impact subsided significantly across China, where the triple pressure of supply shock, demand contraction and weakening expectations have gradually eased. Domestic demand contributed more to economic growth. China’s GDP grew by 4.5% in Q1, beating market expectations. Its Q2 GDP growth is estimated at around 6%. Looking into H2, driven by pro-consumption policies and accelerated release of pent-up demand for consumer services, consumption is expected to maintain a moderate recovery, infrastructure investment will continue to grow rapidly, and investment in high-tech industries will underpin the growth of investment. The property market is likely to gradually bottom out for a recovery. GDP is expected to grow by about 4.9% in Q3, and by around 5.4% for the year.
With regard to global banking developments, the Report predicts that in 2023Q3, uncertainties will persist in the global financial system and the banking sector will remain under pressure: Credit risk and liquidity risk are prominent in the banking sector. Weak credit demand and heightened lending standards have been slowing down the expansion of assets. The financial market is volatile and diverging, hampering capital replenishments. The non-interest business is struggling to recover, with overall profitability on the decline. China remains on track for economic recovery. The Chinese banking industry has taken the initiative to increase support for the real economy, steadily expand assets and liabilities and emphasize both volume and efficiency of business development. Chinese banks adapt themselves to the LPR cuts and keep their overall profits stable, with the asset quality keeping improving. They also strengthen the capability of diverse capital replenishments to fortify the groundwork for risk prevention and control.
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