Goldman Sachs has downgraded China’s GDP forecast under Kovid control

Since March, mainland China has struggled to control the worst covidian outbreak in two years. Significantly, the Shanghai metropolis, pictured here on May 18, has just begun talks this week about resuming normal activities – with a goal in mid-June.

Hector Retamaal | AFP | Getty Images

BEIJING – Goldman Sachs analysts cut their forecast for China’s GDP to 4% on Wednesday as April data showed a slowdown in growth as Kovid-19 controls business activity.

The new forecast is well below the Chinese government’s announced growth target of “about 5.5%” in March.

“In light of the Q2 coup-related losses in the economy, we now expect China’s growth to be 4% this year (up from the previous 4.5%),” a team of Hui Shan and Goldman wrote in a report on Wednesday. This prediction assumes that there will be significant government support for stabilizing the property market and for measures to control covid outbreaks.

Since March, mainland China has struggled to control the worst covidian outbreak in two years. Significantly, the Shanghai metropolis only began talks this week about resuming normal activities – with a goal in mid-June.

Among weaker data in April, Goldman analysts pointed to a dip in housing starts and sales, half of the expected credit growth in the market, and a drop of less than 1% for consumer price growth, excluding food and fuel.

Other April data released on Monday showed unexpected declines in industrial production and the expected 11.1% decline in retail sales a year earlier. Exports, the main driver of growth, rose 3.9% in April compared to a year earlier, the slowest pace since 0.18% growth in June 2020, according to official data accessed through Wind Information.

“Weak data highlights tensions between China’s growth target and the zero-cue policy that are at the heart of China’s growth outlook,” Goldman analysts said.

They noted how Chinese leaders have emphasized their “dynamic zero-covid” policy and how the news that China will not host the Asian Cup next summer because of covid reflects Beijing’s conservative mentality.

Goldman analysts say, “We now expect that reopening will not begin before 2023Q2 and that the process will be slower and more controlled than previously thought.”

“That’s why our GDP growth forecast for 2023 has risen by only a quarter to 5.3% (vs. 5.0% earlier), despite a half-point downward revision of the full-year growth forecast for 2022.”

Other banks cut forecasts

On Monday, Citi – which was one of China’s highest GDP forecasts – cut its outlook for growth to 4.2% from 5.1%.

A few days ago, JPMorgan lowered its estimate from 4.6% to 4.3%. Morgan Stanley lowered its target to 4.2% from 4.6% in late April.

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