Wall Street split on cutting China GDP forecast after April data disappoints

NEW YORK – Investment banks are split over whether weaker-than-expected Chinese economic data for April redefines the growth outlook for the entire year.

China’s poor economic performance in 2022 makes for a low base of comparison, suggesting it is easier for gross domestic product (GDP) to register solid growth in 2023.

That is behind the thinking of Standard Chartered economists led by Mr Li Wei, who retained their projection for GDP to rise 5.8 per cent in 2023 – even after official data on Tuesday showed China’s industrial output, retail sales and fixed investment grew at a much slower pace than expected in April.

But JPMorgan Chase & Co and Barclays disagreed, reducing their forecasts.

“April data points at a big loss in recovery momentum,” JPMorgan economists led by Dr Zhu Haibin wrote in a note to clients.

The bank lowered its full-year GDP growth estimate to 5.9 per cent from a previous 6.4 per cent, which had been among the highest of economists’ forecasts.

Barclays economists led by Ms Chang Jian went further, with “5.6 per cent growth for this year now out of reach”, setting a new target for 2023 of 5.3 per cent. For the current quarter, the bank slashed its calculation to just a 1 per cent gain from the previous three months, at an annualised rate.

Some of those maintaining their 2023 forecasts cited the likelihood of Beijing expanding its stimulus measures to support the economy.

“If growth disappoints in the coming months, China may boost infrastructure investment and roll out some targeted consumption support” in the second half of 2023, wrote UBS Group chief China economist Wang Tao.

The bank left its projection at 5.7 per cent.

Morgan Stanley’s team, including Mr Robin Xing, similarly retained its 5.7 per cent call, saying that estimate remains on track with additional policy easing and broadening consumption gains in the second half.

But Barclays and JPMorgan are not counting on that outcome.

“The probability seems low, in our view” of consumption stimulus, JPMorgan’s team wrote.

The economists also said it is important to monitor whether the government can adjust industrial policy to restore confidence among private entrepreneurs, to build up a better business environment.

Keeping in mind that Beijing has targeted growth in 2023 at only around 5 per cent, “we don’t expect aggressive easing” to be enacted, the Barclays economists wrote.

In the meantime, big downside surprises in industrial production, retail sales, real estate investment and youth employment confirm weakening demand amid deepening property woes, they wrote.

Neither of the two more pessimistic banks sees much by way of monetary policy measures.

JPMorgan said the People’s Bank of China signalled no change in policy rates in its quarterly monetary policy report this week.

To Barclays, while interest rate cuts cannot be ruled out, “room for such an action is limited this year”.

Chinese assets came under pressure after Tuesday’s releases, with the offshore renminbi falling to its lowest level in 2023 against the US dollar. BLOOMBERG