Goldman Sachs, in line with other major Wall Street banks, has revised its growth forecast for China downwards, attributing it to the country’s sluggish economic performance and fading momentum following the reopening from the COVID-19 pandemic. The investment bank has lowered its projection for China’s gross domestic product (GDP) in 2023 from 6% to 5.4%, anticipating ongoing challenges for the economy. Despite the expectation of additional stimulus measures, Goldman Sachs acknowledges that these efforts may not be sufficient to address the underlying issues, particularly the prevailing weakened sentiment in the market.
The downward revision by Goldman Sachs aligns with similar downgrades made by UBS, Bank of America, and JPMorgan, all of which have adjusted their forecasts for China’s full-year GDP. These downgrades are based on the persistent challenges in the property market, prevailing pessimism among consumers and private entrepreneurs, and only moderate policy easing to counteract significant growth obstacles. In a research note on Sunday, economists led by Chief China Economist Hui Shan explained their decision to revise down the forecast for real GDP in 2023. This adjustment by Goldman Sachs is in line with the downgrades made by other prominent financial institutions.
Goldman Sachs’ economists also highlight a range of macroeconomic challenges facing China. As the initial boost from the reopening diminishes, they believe that medium-term issues such as demographics, the prolonged downturn in the property market, concerns over implicit debt at the local government level, and geopolitical tensions may increasingly impact China’s growth prospects.
Additionally, Goldman Sachs predicts continued weakness in the Chinese yuan against the U.S. dollar. This projection is based on expected rate differentials, with the People’s Bank of China anticipated to further ease its monetary policy while the Federal Reserve hints at potential future rate hikes.
UBS also anticipates ongoing weakness in China’s economy, particularly in the second quarter of the year. Wang Tao, Chief China Economist at UBS Investment Bank, expects sequential growth in Q2 to slow to only 1-2% quarter-on-quarter seasonally adjusted annual rate (saar), which is lower than their earlier estimate of 4.5%.
Wang emphasizes that uncertainty in China’s property sector remains a significant risk to their forecast and could further dampen the growth outlook. She points out that the risks to their projection are slightly tilted towards the downside, primarily due to uncertainties surrounding the property market, the future path of policy support, and weaker external demand.
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