China’s GDP forecasts cut by some banks to below 5% target, Beijing facing ‘critical point’

Some major investment banks cut their forecasts for China’s 2024 economic growth to below 5 per cent following disappointing second-quarter data

China GDP

Amanda Lee

Published: 4:36pm, 16 Jul 2024

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A slew of disappointing economic data from China spurred some major investment banks to cut their 2024 growth forecasts to below Beijing’s annual target, with some highlighting significant downside risks in the coming months.

Barclays reduced its gross domestic product forecast from 5 per cent to 4.8 per cent, while Goldman Sachs cut its prediction from 5 per cent to 4.9 per cent after China on Monday released lower than expected second-quarter growth of 4.7 per cent compared to a year earlier.

The reading was also weaker than the 5.3 per cent growth recorded in the first quarter, and was below the around 5 per cent target for 2024 overall.

“To counteract weak domestic demand, we believe more policy easing is necessary through the remainder of this year,” Goldman Sachs analysts led by Lisheng Wang said on Monday.

They added that the latest set of economic data highlighted the continued, significant and cross-sector divergence in the world’s second-largest economy, with strong exports and manufacturing activity, relatively stable service consumption in volume terms and still depressed property activity.

Singapore’s UOB Group, meanwhile, also downgraded their 2024 forecast from 5.1 per cent to 4.9 per cent, pointing to poor retail sales as an indicator of an uneven recovery.

Retail sales rose by just 2 per cent year on year in June, compared with 3.7 per cent growth seen in May, marking the slowest pace since China lifted its coronavirus restrictions at the end of 2022.

Analysts at Citi said while the property crisis continued to be a major drag on China’s economic activity, there were “minor signs” of positive impact from the wide-ranging measures announced in May aimed at encouraging home purchases.

We expect the government to roll out additional policy support in the second half to stabilise growth

UBS

“We believe China is now at a critical point where its dual-tracked recovery faces more significant downside risks,” Citi said on Monday.

“Such a backdrop could be conducive for larger stimulus, yet we are still subscribed to a targeted and measured policy outlook for the second half of this year.

“The disappointing data does not necessarily mean that the growth target is out of reach.”

Swiss bank UBS maintained its 2024 forecast at 4.9 per cent, but highlighted downside risks from the continued property downturn.

“The official 2024 growth target of around 5 per cent looks challenging following the disappointing second quarter GDP reading,” UBS said on Monday.

“We expect the government to roll out additional policy support in the second half to stabilise growth.”