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Investment banks have been cutting their growth forecasts for China, saying the Chinese government is at risk of falling below its official target of around 5 percent, as confidence in the world’s second-largest economy fades.
Bank of America cut its forecast yield to 4.8% from 5% on Wednesday, while Canadian investment bank TD Securities cut it to 4.7% from 5.1%. The moves followed a cut by UBS last week and a series of similar rate cuts over the summer.
City economists warned this week that Beijing’s official growth target of around 5 percent, the lowest in decades, “may be at risk,” raising concerns about the trajectory of China’s economy as policymakers grapple with a long-term slowdown in the property sector and fading consumer and investor confidence.
The median forecast for full-year gross domestic product growth among dozens of economists surveyed by Bloomberg fell to 4.8% from 4.9% in mid-August. China grew 5.2% last year, as expected.
Bank of America analysts said China’s growth engine “stalled” in the second and third quarters and the economy “continues to suffer from confidence issues.”
For decades, China’s GDP growth has comfortably met the government’s targets set by parliament at the start of each year, but the numbers have come under intense scrutiny in the wake of the coronavirus pandemic.
“I think [the reason] Why is it so important now? [that] “There are clearly downside risks to growth,” said Frederic Neumann, chief Asia economist at HSBC, which forecasts growth of 4.9 percent. “Having a growth target anchors market expectations.”
He added that there was “little doubt” that Chinese policymakers, with their “strong grip on the economy,” could steer growth toward 5 percent.
A weaker-than-expected 4.7% second-quarter growth rate in July sparked a series of forecast cuts. Goldman Sachs, Citi and Barclays in July cut their full-year growth targets from 5% to 4.9%, 4.8% and 4.8%, respectively. JPMorgan sees growth of 4.6%.
UBS’s chief China economist, Wang Tao, said last week that the bank, which sees growth of 4.6% in 2024 and just 4% in 2025, was lowering its forecast because “the deeper-than-expected property market downturn has yet to bottom” and its impact on “household consumption”.
UBS also revised down its China GDP deflator, which reflects the difference between nominal and real prices, because it expects “deflationary pressures to persist for a long period.”
Ahead of August economic and inflation data due next week, Citi said on Tuesday that China was hit by a “double whammy of weather shocks and weak demand” last month, causing steel production to fall 8.5 percent from 5.3 percent in July.
Hunter Chan, an economist at Standard Chartered Bank, forecasts growth of 4.8% this year, but noted the impact of a slowdown in the housing market in the first half of the year, as well as the risk of “escalating trade tensions between China and other economies.” “Currently, the government’s housing sector policy is geared towards stabilizing home prices and stabilizing the housing market,” he said. [it]” he said.
China’s GDP growth rate for 2022 rose by just 3% against a target of 5.5% due to a series of anti-coronavirus lockdowns, missing the target. Disappointing data released this year has sparked calls for further government stimulus.
Alex Lu, a strategist at TD Securities, predicted the government would miss its targets again this year without a mid-year budget boost, citing sluggish spending, a lack of private investment and “widespread pessimism” among domestic companies and major importers.
He said if August data again fell short of expectations, officials would “avoid mentioning targets like we have for 2022.”
