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China’s Economy: A Growing Concern

Investment banks are scaling back their growth forecasts for China, as concerns mount over the country’s ability to meet its official target of around 5% growth. According to Bank of America and Canadian investment bank TD Securities, China’s growth is likely to slow down, with forecasts revised to 4.8% and 4.7% respectively.

A History of Missed Targets

For decades, China’s GDP growth has easily met the government’s target, which is announced at the National People’s Congress meeting early each year. However, in the wake of the Covid pandemic, the target has become a focal point of scrutiny. China missed its 2022 GDP target, expanding just 3% on a goal of 5.5% after a series of Covid lockdowns. The drumroll of disappointing data releases this year has prompted calls for more government stimulus.

Weaker than Expected Growth

The Chinese economy has been experiencing a prolonged property sector slowdown and weak consumer and investor confidence. Weaker-than-expected second-quarter growth of 4.7% in July sparked a flurry of forecast cuts. Goldman Sachs, Citi, and Barclays reduced their full-year growth targets in July to 4.9%, 4.8%, and 4.8% respectively, all from 5%. JPMorgan expects growth of 4.6%.

The Impact of the Property Downturn

UBS chief China economist Wang Tao cited the deeper-than-expected property downturn as a key factor in the bank’s reduced expectations. The Swiss bank now projects growth of 4.6% for 2024 and just 4% for 2025. The impact on household consumption is expected to be significant.

Double Whammy of Weather Shocks and Weak Demand

Citi pointed to an 8.5% contraction in steel output, widening from 5.3% in July, as a sign of the double whammy of weather shocks and weak demand. Steel output is a key indicator of economic activity.

What’s at Stake?

The median forecast for full-year gross domestic product growth across dozens of economists polled by Bloomberg has slipped to 4.8% compared to 4.9% in mid-August. Last year, China grew 5.2% in line with forecasts. The economy is struggling with a confidence problem, and policymakers are under pressure to steer growth towards the official target.

Conclusion

China’s economic growth is a closely watched indicator of the country’s overall performance. With multiple investment banks scaling back their forecasts, it’s clear that the Chinese economy is facing significant challenges. As policymakers grapple with the prolonged property sector slowdown and weak consumer and investor confidence, it’s crucial to monitor the situation closely to understand the implications for the global economy.

FAQs

Q: What is China’s official GDP growth target for 2024?

A: China’s official GDP growth target for 2024 is around 5%.

Q: Which investment banks have cut their growth forecasts for China?

A: Bank of America, TD Securities, UBS, and multiple other investment banks have cut their growth forecasts for China.

Q: Why is China’s economic growth important?

A: China’s economic growth is a closely watched indicator of the country’s overall performance and has significant implications for the global economy.

Q: What is driving China’s economic growth slowdown?

A: The prolonged property sector slowdown and weak consumer and investor confidence are key factors driving China’s economic growth slowdown.

Q: What are the implications of China missing its GDP growth target?

A: If China misses its GDP growth target, it could have significant implications for the country’s economy and global economic stability.

Author: www.ft.com

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