UBS cuts China growth outlook as scepticism grows over 5% target

BEIJING - China’s annual growth target looks increasingly out of reach to economists, with UBS Group adding to a string of recent forecast cuts as consumer spending slows and President Xi Jinping’s government avoids major stimulus.

With economic momentum held back by a real estate downturn and tight fiscal policy, the Swiss bank now expects China’s gross domestic product (GDP) to expand 4.6 per cent in 2024 – compared with an earlier forecast of 4.9 per cent. For 2025, UBS sees growth at 4 per cent, down from 4.6 per cent previously.

The downgrade, coming after weak earnings reports from several top Chinese consumer companies in August, reflects an emerging consensus among the world’s biggest banks that the country might not meet its

growth aim of around 5 per cent in 2024

. By contrast, the Politburo – comprising the ruling Communist Party’s top 24 officials – has remained committed to achieving 2024’s “economic and social development targets” that include the GDP goal.

But the real estate downturn is weighing heavily on domestic demand and confidence. China last missed its annual growth target in 2022, when Covid-19 lockdowns and abrupt policy changes put that goal out of reach. 

“We expect weaker property activities to have a bigger drag on the overall economy than earlier expected, including through household consumption,” UBS economists wrote in a note on Aug 18.

Many analysts have slashed their growth projections for China’s economy after it slowed to its weakest pace in five quarters from April to June. Other banks sceptical about Beijing achieving its growth target include JPMorgan Chase – which also predicts a 4.6 per cent increase – and Nomura Holdings, which forecasts an even lower 4.5 per cent.

A Bloomberg survey in August shows economists lowering their growth forecasts for the third and fourth quarters to 4.6 per cent from 4.7 per cent in the previous poll.

Despite China easing its policies towards the property market since the end of 2022 – including reduced down-payment requirements, lower mortgage rates and fewer restrictions on home purchases – the implementation of the measures has been slow, with limited impact, according to UBS.

“China’s property demand and supply fundamentals have changed in recent years, market confidence is low amid weak household income growth, and inventory levels are high while destocking implementation has been slow,” the economists wrote. The bank downgraded its outlook for China’s property sector and now expects a bottoming out of new starts only in mid-2026.

China’s housing slump has shown little sign of reversing. New home sales fell almost 20 per cent in July from a year earlier, while first-hand home prices dropped at their fastest pace on a year-on-year basis in nine years. New home starts also continued to plunge at a clip of around 20 per cent. The crisis has dragged down everything from the job market to consumption and household wealth over the past two years.

Despite Beijing’s pledges to respond with more forceful fiscal measures this year, a broad measure of public spending actually contracted in the first seven months. Local governments’ ability to spur growth has been undermined by plummeting income from land sales and a drive to divert financial resources to contain debt risks.

Mr Wang Yan, a strategist at Alpine Macro who recently returned from a trip to China, described the government’s 5 per cent growth target as “almost impossible” to achieve and warned over potential risks of “a slow implosion” ahead.

Policymakers lack a clear and coherent strategy to tackle the challenges, he said, adding that even the “piecemeal measures” being implemented to address demand issues are ad-hoc and hesitant.

A growing chorus of Chinese economists have called on Beijing to raise the 2024 budget deficit to open the door to more central government borrowing to help the economy.

Some also expect the People’s Bank of China (PBOC) to deliver interest rate cuts or inject liquidity via a decrease to the amount of cash lenders must keep in reserve in the coming months, when the US Federal Reserve is expected to start easing policy.

The Chinese central bank reduced a key short-term policy rate in July but has since refrained from lowering borrowing costs further. PBOC governor Pan Gongsheng said earlier in August that the authorities will avoid adopting “drastic” measures despite their determination to achieve Beijing’s growth targets. BLOOMBERG