Goldman Sachs cuts China growth forecasts

Goldman Sachs has cut its growth forecasts for China, arguing that after a strong start in the first quarter, the country’s post-reopening recovery "appears to have fizzled out in Q2" and that government stimulus won’t be enough.

The bank downgraded its 2023 full-year real GDP growth forecast to 5.4% from 6.0% and its 2024 forecast to 4.5% from 4.6%.

"Although contact-intensive services sectors continued to heal, May activity data show that the property market, the largest sector in the economy, weakened again," it noted. "Property investment growth declined to -10% year-on-year and property-related products underperformed in detailed industrial production and retail sales data.

"With no ‘easy fix’ on the horizon, the property market’s weakness and its negative impact on the rest of the economy is likely to persist."

Goldman said policymakers face constraints and the upcoming policy easing will not be as large and forceful as during the 2008-09, 2015-16 and 2020 cycles.

"Given the challenging demographic trajectory, the already elevated debt levels, and the ‘housing is for living in, not for speculation’ mantra, we think any property and infrastructure stimulus is likely to be only targeted and moderate, to be consistent with the top leadership’s ‘high-quality growth’ model.

"In contrast to property and infrastructure, policy support to high-end manufacturing, new energy vehicles, and other consumption categories is consistent with China’s ‘high-quality growth’ model. However, because such policy support has already been ongoing, the continuation of these policies is unlikely to generate a strong growth impulse."