Goldman says China to miss GDP target on oil shock as World Bank slashes growth for big importers

Goldman estimates that a US$20 per barrel increase in oil prices reduces Chinese growth by 0.3 percentage points. PHOTO: REUTERS

HONG KONG (BLOOMBERG, REUTERS) - China is on course to miss its economic growth target by 1 percentage point this year as spiking oil prices, fuelled by Russia's invasion of Ukraine, weigh on the world's second-largest economy, Goldman Sachs said.

The oil price shock also saw the World Bank slashing its growth forecasts for big importers ike China, Indonesia, South Africa and Turkey.

Beijing said at the weekend it would accelerate fiscal spending and aim for growth of "about 5.5 per cent", this year. But Goldman analysts kept their forecast unchanged at 4.5 per cent, citing headwinds to the economy from oil, falling housing sales and persistent local Covid-19 outbreaks.

Missing the target would be unusual, as Beijing has reported growth in line or exceeding the bottom range of its gross domestic product (GDP) target every year since 2014.

The official target "imposes some upside risk to our 4.5 per cent projection", Goldman analysts led by chief China economist Hui Shan wrote in a note. At the same time, "our commodity team revised up their oil price forecast significantly, which is negative for China growth".

Goldman estimates that a US$20 per barrel increase in oil prices reduces Chinese growth by 0.3 percentage points, implying a 0.5 percentage point drag on GDP growth this year based on a forecast for oil prices. The bank said Beijing would need to accelerate policy easing to keep growth from sliding below 4.5 per cent.

Oil prices have more than doubled over the last six months, and spiked 30 per cent since Russia invaded Ukraine on Feb 24.

Goldman said: "Higher oil prices would lower real household/corporate income and weigh on consumption and investment activities. But, given the importance of economic growth to labour market stability and financial stability, especially in a politically important year, we think the government is unlikely to let this year's GDP growth to slide further below 4.5 per cent this year."

Meanwhile, a World Bank official said the persistent high oil prices could cut a full percentage point off the growth off large oil-importing developing economies.

Dr Indermit Gill, the bank's vice-president for equitable growth, finance and institutions, said in a blog posting that the war will deal further setbacks to growth for emerging markets already lagging in recovery from the pandemic and struggling with a range of uncertainties from debt to inflation.

"The war has aggravated those uncertainties in ways that will reverberate across the world, harming the most vulnerable people in the most fragile places," Dr Gill said.

"It's too soon to tell the degree to which the conflict will alter the global economic outlook."

Some countries in the Middle East, Central Asia, Africa and Europe are heavily reliant on Russia and Ukraine for food, as the countries together make up more than 20 per cent of global wheat exports.

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Dr Gill said estimates from a forthcoming World Bank publication suggest that a 10 per cent oil price increase that persists for several years can cut growth in commodity-importing developing economies by a tenth of a percentage point.

"If this lasts, oil could shave a full percentage point of growth from oil importers like China, Indonesia, South Africa, and Turkey," he said.

"Before the war broke out, South Africa was expected to grow by about 2 per cent annually in 2022 and 2023, Turkey by 2 per cent to 3 per cent, and China and Indonesia by 5 per cent."

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