Several Wall Street Banks, including Goldman Sachs, have cut their outlook on growth in China as the economy struggles.
Leading global investment banking and management firm Goldman Sachs has joined several Wall Street banks to reduce its growth outlook for China. This downgrade comes as the East Asian powerhouse is experiencing a dwindling economy as it battles the effects of the coronavirus pandemic.
Goldman Sachs reduced the growth outlook for China’s full-year 2023 GDP (gross domestic product) to 5.4% from 6%, and that of 2024 to 4.5% from 4.6%. Led by Chief China Economist Hui Shan, the Goldman economists said in a Sunday research note:
“With continued challenges from the property market, pervasive pessimism among consumers and private entrepreneurs, and only moderate policy easing to partially offset the strong growth headwinds, we mark down our 2023 real GDP forecast.”
Goldman Sachs joins several other institutions that cut their growth outlook for China. Bank of America cut its outlook from 6.3% to 5.7%, with JPMorgan also dropping its forecast to 5.5% from 5.9%. Others include Standard Chartered’s 5.4% from 5.8%, and UBS from 5.7% to 5.2%. Nomura was the lowest at 5.1%, cutting down from 5.5%.
According to the economists from Goldman Sachs, multiple issues continue to plague China’s growth outlook. China reopened its economy following lockdowns introduced to control the spread of coronavirus. The Chinese foreign ministry also recently announced that all types of foreign visas will now be available again. China had reopened borders in January but restricted visits to business and family purposes. However, analysts have now noted that the “reopening boost [is] quickly fading”.
More Challenges Facing China’s Growth Outlook
Goldman Sachs also highlighted several “medium-term challenges”, including debt problems plaguing local governments, demographics, and a property downturn. In addition, the economists highlighted geopolitical tensions as one of the factors negatively affecting China’s growth outlook.
The Chinese government put its GDP growth for the year at 5%. Officials likely limited their outlook after missing the forecast set last year. Judging by this, the current growth outlooks set by these Wall Street institutions seem relatively at par with Beijing’s figure. Nonetheless, Wall Street is not optimistic.
For instance, China’s recent reduction in its repurchase rate points to more easing. The economists say this will cause rate differentials that eventually weaken the Yuan against the Dollar.
UBS also has a weak outlook. According to the bank’s Chief China Economist Wang Tao:
“Q2 sequential growth may slow to only 1-2% quarter-on-quarter saar [seasonally adjusted annual rate], weaker than our earlier expectation of 4.5%.”
The economist also pointed to problems with China’s property sector, specifying that the problems are strong enough to dampen the growth outlook.
In February, Goldman Sachs analysts had more faith in the Chinese economy. These analysts had projected that stocks in China could rise up to 24% before 2023 runs out. According to Chief China equity strategist Kinger Lau, the stock market will begin to recover after the country’s reopening phase.
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