Banks slash China growth forecasts again after slew of disappointing data

New York - For the second straight month,

a slew of disappointing economic data

from China spurred investment banks around the world to cut their 2023 growth outlook.

The wave of downgrades highlights the danger of the world’s second-biggest economy missing its official target of around 5 per cent expansion for 2023, without more concerted policy actions. The latest reductions by private-sector economists followed an announcement of

interest-rate cuts by the central bank.

JPMorgan Chase & Co’s team lowered its full-year forecast for 2023 to a 4.8 per cent gain for gross domestic product (GDP). As recently as early May, the bank had been predicting a 6.4 per cent expansion, among the highest calls.

The JPMorgan economists now anticipate a 4.2 per cent growth pace for 2024. After China’s relatively paltry 3 per cent expansion in 2022, that would leave the country with its first three straight years of sub-5 per cent growth since the era of Mao Zedong, according to data compiled by Bloomberg.

For its part, Barclays cut its GDP growth estimate by 0.4 percentage points to 4.5 per cent for 2023 while maintaining a below-consensus 2024 projection of 4 per cent.

Barclays economists including Ms Jian Chang attributed the move to disappointing data on consumption, housing, exports and credit, as well as the absence of effective stimulus.

On Tuesday, official activity data for July showed growth in consumer spending, industrial output and investment sliding across the board and unemployment picking up. A similarly disappointing set of data for June had triggered a number of banks to reduce their full-year forecasts in July.

Among those trimming predictions this time is Mizuho Financial Group. The big Japanese lender reduced its full-year GDP growth projection to 5 per cent from 5.5 per cent. Ms Serena Zhou, the bank’s senior China economist, cited headwinds from continuing weakness in the property market.

JPMorgan also highlighted China’s real estate woes. “The deterioration in housing market outlook, especially another year of big decline in land purchase and new home starts, tends to increase the drag” on the economy, the bank’s economists said.

They also cited concerns about giant developer Country Garden

missing a bond coupon payment recently

– a move that will likely further erode market confidence and intensify the spillover risk across portions of China’s financial sector.

The National Bureau of Statistics itself on Tuesday stated that domestic demand remained “insufficient” and that the “economy’s recovery foundation still needs to be strengthened”.

Other recent data have shown the weakest pace of bank lending in 14 years, the emergence of deflationary pressures and a contraction in exports.

Not everyone is cutting forecasts. Standard Chartered said it is keeping its full-year projection at 5.4 per cent. “Despite a weak start” to the third quarter, “we still think China can achieve its GDP growth target of about 5 per cent”, its economists wrote in a note. They anticipate “a reopening boost to the services sector, and increased policy stimulus”.

Others standing pat still cited risks to their outlook. Among them: Morgan Stanley. “If easing remains slow”, then the official 5 per cent target will be at risk, its economists said.

Further monetary and fiscal measures, along with a relaxation of rules for the property market, could help growth rebound in the second half of 2023, UBS Group economists wrote. They maintained a full-year GDP growth forecast at 5.2 per cent in a baseline scenario.

“The data weakness is hardly a surprise, and the more important thing to watch should be policy delivery at this stage,” Citigroup economists wrote after Tuesday’s releases.

“To meet the growth target, we are in a race between policies and the economy.” BLOOMBERG