Chinese economists have cut their forecasts for the country’s gross domestic product in 2024 in the latest quarterly Nikkei and Nikkei Quick News survey, underlining the pressure on authorities struggling to revive growth.
The average forecast of 28 local experts on China’s economy points to annual GDP growth slowing to 4.8 per cent, down from 4.9 per cent in the previous survey in July. Some of the economists submitted or updated their responses after Chinese authorities last week cut interest rates, supported the property market and pumped billions of dollars into the stock market, sending shares soaring. For those who responded before the stimulus began, the Nikkei asked whether they wanted to change their forecasts.
Of the 25 economists who made full-year growth forecasts in the previous quarterly survey, 16 cut their outlooks, while nine held their expectations steady. The overall range of growth forecasts shifted downwards from 4.8 to 5.3 percent to 4.5 to 5.0 percent. The average forecast for the July-September quarter is 4.6 percent, a further deceleration from the 4.7 percent growth recorded in the April-June period and weaker than the 4.9 percent expansion in the third quarter of last year. The quarter-on-quarter growth forecast for the third quarter, which better reflects the momentum of the economy, is 1.1% in seasonally adjusted terms, slightly higher than the 0.7% growth recorded in the second quarter.
Analysts warned of significant headwinds. KGI Asia’s Ken Chen cut his annual growth forecast to 4.9% from 5.3%, taking into account recent weaker-than-expected data ranging from industrial production and investment to retail and property sales. The current economic growth trend is still down, mainly due to the bottoming out of the property cycle and downward pressure from external demand,’ he said, suggesting that stimulus may not be enough to achieve the government’s annual GDP target of ‘around 5%’.
Despite policy efforts to lower mortgage rates and reduce the cost of buying, the housing sector remains a major drag. When economists were asked to pick the top three risks from a list of nine, the “sluggish housing market” topped the list, cited by 17 out of 20. This was followed by ‘weak consumer confidence’ and ‘no or inadequate policy’.
Hui Shan, chief China economist at Goldman Sachs, cut his forecast from 4.9% to 4.7%, saying that previous policy measures to stimulate the property market “may not be as effective”.
Tetsuji Sano, chief Asia economist at Sumitomo Mitsui DS Asset Management, said: ‘Consumer demand is likely to fall across the board as the population continues to age and the pension system is underdeveloped.
Property accounts for about 70% of Chinese household assets. This means that the fall in house prices has a direct negative wealth effect, reducing consumer confidence and fuelling deflation concerns.
There are clear risks that deflationary pressures could become entrenched,’ said Alex Muscatelli, Chief Economics Officer at Fitch Ratings. He noted that the GDP deflator, which reflects general price changes in the economy, has fallen on an annualised basis for five consecutive quarters, while prices of basic goods and services have remained flat.
China is heavily reliant on manufacturing and exports, especially as it has struggled to improve sentiment since the COVID-19 outbreak, but momentum in this sector is also starting to wane. Industrial production growth slowed to 4.5% y/y in August from 5.1% y/y in July.
This comes at a time of heightened trade protectionism, with the US, the European Union and Canada imposing additional tariffs on Chinese electric vehicles. Similarly, Indonesia has reimposed tariffs on goods such as textile imports, particularly from China, which came into effect in August.
Arjen van Dijkhuizen, senior economist at ABN AMRO Bank, noted that trade divergence has helped mitigate the impact of tariffs to some extent and that exports remain the key driver of China’s growth. ‘However, China’s supply-side strategy is contributing to escalating trade frictions, with the US, EU and others protecting strategic sectors from China’s [oversupply],’ he said.
Ongoing external and internal uncertainties appear to be behind the stimulus measures, which involve numerous central government agencies, including the People’s Bank of China.
It is rare for the PBOC to announce both a [reserve requirement ratio] cut and an interest rate cut at the same time, signalling the urgency policymakers feel to provide support,’ said Jing Liu, chief economist for Greater China at HSBC.
Jian Chang, chief China economist at Barclays, agreed. Recent developments signal that the Chinese leadership is taking a more proactive approach to tackling its most pressing structural problems. However, both bank economists left their annual forecasts unchanged at 4.9 per cent and 4.8 per cent respectively.
Looking beyond this year, the economists expect a gradual slowdown to 4.5 per cent in 2025 and 4.2 per cent in 2026, reflecting a long-term structural slowdown.
“The crisis in the housing sector, the associated loss of housing wealth and the need for households to repair their balance sheets, as well as uncertain income and job prospects in an uncertain economic environment, are hampering domestic consumption,” said Sophie Altermatt, economist at Julius Baer.
Wei Yao, chief Asia and China economist at Societe Generale, said ‘the current state of the economy calls for more radical measures’ and stressed the need for ‘restructuring of real estate and local government debt rather than further interest rate cuts to end the deflationary spiral’.
