Lower China growth forecasts cut into next year despite likely support

BEIJING – China’s economic outlook is deteriorating into 2024, with no clear consensus from analysts that the business environment will improve despite Beijing’s push to restore confidence and its efforts to foster United States ties. 

That is the takeaway from a new Bloomberg survey of economists, who downgraded their growth projections for 2023 to 5.2 per cent from an earlier median estimate of 5.5 per cent. Gross domestic product (GDP) is seen expanding 4.8 per cent in 2024, slightly below an earlier median expectation of 4.9 per cent.

China’s economic recovery has lost steam, with GDP growing more slowly than expected in the last quarter and other data flashing warning signs on everything from consumption to trade to the worsening property market slump. Top Chinese leaders signalled a more “dovish” stance on policy going forward, but are still likely to hold off on massive stimulus. 

“I don’t expect stimulus to be of the size that could substantially accelerate China’s growth,” said Dr Tuuli Koivu, chief economist at Nordea Markets, which estimates growth in 2024 of 4 per cent, well below consensus. “I see risks to be biased to the downside,” she said. “This is the new normal we should get used to.”

As many as 73 economists responded to a range of questions about the Chinese economy and the nation’s geopolitical relations. Bloomberg’s survey began after last week’s release of key economic data and ended before Monday’s statement on the Politburo meeting. 

Economists remained cautious about potential monetary policy easing in 2023. Respondents see China’s central bank trimming the rate on its one-year policy loans by 10 basis points this quarter, more than a prior estimate of a five basis-point cut. They left their expectations for a 25 basis-point cut to the reserve requirement ratio in the July-to-September period unchanged.

Respondents also flagged deflationary risks in the survey after China’s consumer price index (CPI) flatlined in June. CPI is expected to average 0.9 per cent in 2023, down from a prior survey estimate of 1.2 per cent. Asked how long they see deflationary pressures persisting, 10 of 14 economists said four months or longer.

Analysts were also divided about other potential contributors to growth this year – including the state of US-China relations and whether Beijing-led efforts to boost private business confidence will work.

Seven of 14 economists who answered a question about the Biden administration’s recent high-level visits to Beijing said those trips will ease concerns about US-China economic risks. The remainder said they would not. 

“China and the US are trying to go back to the negotiation table to settle a series of conflicts,” said Dr Jinyue Dong, economist at Banco Bilbao Vizcaya Argentaria. “However, China and the US’ intrinsic conflicts – due to ideological issues and economic competition – cannot be settled overnight.”

Ten of those 14 economists said they see private business confidence improving through the end of the year. Chinese President Xi Jinping and other officials have made public overtures backing private firms in recent weeks as the post-pandemic recovery risks being caught in a confidence trap. 

The Politburo statement indicated more support may be coming: Officials vowed to increase general confidence in the economy, singling out investor confidence and capital markets.

Danske Bank’s China economist Allan von Mehren said: “China is in a difficult point in time, but could come out stronger on the other side. It will likely take years, rather than months, though.”
BLOOMBERG