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Investment banks are revising their growth projections for China, expressing concerns that Beijing may fall short of its official target of around 5 per cent amid diminishing confidence in the world’s second-largest economy.
Bank of America has reduced its forecast to 4.8 per cent from 5 per cent, while Canadian investment bank TD Securities has adjusted theirs to 4.7 per cent from 5.1 per cent. These adjustments follow a previous cut by UBS last week and several similar reductions throughout the summer.
Economists at Citi have cautioned that Beijing’s official growth target of “around 5 per cent” is at risk, adding to growing apprehensions about the direction of China’s economy as policymakers confront a prolonged slowdown in the property sector and weakened consumer and investor confidence.
The median forecast for China’s full-year gross domestic product growth, based on a survey of numerous economists by Bloomberg, has declined to 4.8 per cent, down from 4.9 per cent in mid-August. In comparison, China achieved a 5.2 per cent growth rate last year, in line with expectations.
Analysts at Bank of America remarked that China’s growth momentum was faltering in the second and third quarters, noting that the economy is still grappling with a crisis of confidence.
For years, China consistently met the government’s growth targets, which are announced annually at a parliamentary meeting. However, following the Covid pandemic, this figure has come under increased scrutiny.
“The reason why it has gained more significance now is that there are obvious downside risks to growth,” explained Frederic Neumann, chief Asia economist at HSBC, which predicts a 4.9 per cent growth rate. “By setting the growth target, you are setting expectations in the market.”
Neumann added that Chinese policymakers have the ability to guide growth towards 5 per cent given their strong control over the economy.
Weaker-than-expected growth of 4.7 per cent in the second quarter in July prompted a wave of forecast revisions. Goldman Sachs, Citi, and Barclays all lowered their full-year growth projections in July to 4.9 per cent, 4.8 per cent, and 4.8 per cent, respectively, from an initial target of 5 per cent. JPMorgan anticipates a growth rate of 4.6 per cent.
UBS’s chief China economist Wang Tao recently stated that the bank has adjusted its growth forecast for 2024 to 4.6 per cent and for 2025 to 4 per cent due to a more severe-than-expected downturn in the property market, which is affecting household consumption. UBS has also revised down its China GDP deflator in anticipation of prolonged deflationary pressures.
Prior to the release of August economic and inflation data next week, Citi reported on Tuesday that China experienced a “double blow of weather disturbances and weak demand” last month, leading to an 8.5 per cent decline in steel output, up from 5.3 per cent in July.
Hunter Chan, an economist at Standard Chartered, who has forecasted a 4.8 per cent growth rate for the year, also highlighted the potential impact of escalating trade tensions between China and other economies in addition to the slowdown in the housing sector in the first half of the year. “Currently, the government’s focus on the housing sector is on stabilization,” he noted.
In 2022, China fell short of its GDP target, achieving only 3 per cent growth against a target of 5.5 per cent due to a series of Covid-related lockdowns. The string of disappointing economic data releases this year has prompted calls for increased government stimulus.
Alex Loo, a strategist at TD Securities, predicted that Beijing would miss its target again this year unless there is a mid-year increase in the budget, citing weak spending, a lack of private investment, and a growing pessimism among domestic companies and major importers. He suggested that officials might avoid mentioning the target as they did in 2022 if the August data does not meet expectations.