Wall Street cuts China growth forecasts as economy disappoints

NEW YORK – China’s disappointing economic growth figures prompted several economists to downgrade their forecasts for the year, citing major weaknesses in the recovery and Beijing’s relatively muted stimulus response.

J.P. Morgan, Morgan Stanley and Citigroup were among banks to cut their projections for economic growth in 2023 to 5 per cent.

Official figures released on Monday showed that the economy lost momentum in the second quarter, with consumer spending growth weakening notably in June and property investment contracting.

Citigroup economists lowered their forecast for gross domestic product growth this year to 5 per cent from 5.5 per cent, saying Beijing’s official target – set in March at around 5 per cent – is now at risk.

The new projection takes into account “more realistic” policy support over the coming months, the economists wrote. They said that while a meeting of the Communist Party’s Politburo later in July will provide clues about policy thinking, there are risks that policies could “fall behind the curve or short of expectations”.

J.P. Morgan trimmed its forecast to 5 per cent from 5.5 per cent, while Morgan Stanley reduced its estimate to 5 per cent from 5.7 per cent. UOB, Capital Economics and Societe Generale also lowered their predictions.

Investors should trim their expectations for a “fast, cure-all package” of stimulus measures, said Nomura Holdings chief China economist Lu Ting.

While Dr Lu expects Beijing to introduce some supportive measures, including two policy rate cuts of 10 basis points and additional fiscal transfers to local governments, he said that “these measures may not turn things around”.

Dr Lu cited challenges including weak confidence and the collapse of land sales as a revenue source creating a “huge fiscal cliff”, along with “clogged transmission channels, a shrinking tool box (and) slow decision-making on economic matters”.

HSBC Holdings chief Asia economist Frederic Neumann said that overly stimulating demand right now “may prove counterproductive by stoking the build-up in debt and accentuating some of the economy’s imbalances, such as its reliance on a vast housing construction sector”.

Budget constraints of local governments may be another factor limiting stimulus, according to Mr Zerlina Zeng, senior credit analyst at CreditSights.

Monday’s data showed a marked slowdown in retail sales growth. That was worrying, said Mr Louis Kuijs, chief economist for Asia-Pacific at S&P Global Ratings.

“What we all expected was a consumption- and service-led recovery. If that is sputtering, then there’s no engine left for the recovery,” Mr Kuijs said, pointing to concerns about trouble in exports – which had been a driver of growth for the last few years – as well as real estate. BLOOMBERG