Private consumption could emerge as a greater driver of the Chinese economy in 2021 with the release of increased precautionary savings and a full recovery of the job market, according to a research report from Morgan Stanley.
The investment bank forecast China's real private consumption growth to jump to 12.4 percent year-on-year in 2021, playing a larger role in driving growth than exports and infrastructure investment.
"We expect the excess savings to be partly released in 2021, as consumer confidence likely improves on the back of a broader job market recovery and a more stable COVID-19 situation domestically," said Robin Xing, chief China economist of the bank, in the co-authored report.
China's household income and saving rates rose this year as a faster recovery in manufacturing and construction partly offset the job market pressure in contact-based service sectors, according to the report.
Official data showed the country's per capita disposable income in Q3 went up by 3.9 percent year-on-year in nominal terms. The surveyed unemployment rate in urban areas improved to 5.3 percent in October, 0.1 percentage points lower than that of September.
Meanwhile, the labor market recovery is expected to expand into contact-based service segments next year, which will also boost consumption, according to Xing.
Though the consumption recovery has been asymmetric in 2020, as spending in segments such as cars and mobile phones greatly improved while that in entertainment, travel, and medical services remained lower than pre-COVID levels, Xing predicted these laggard segments would catch up in 2021 considering improved COVID-19 containment and future vaccine availability.
Combined with a rebound in government consumption on the back of better revenue, overall consumption should contribute 6.7 percentage points to headline GDP growth, according to the report.