Goldman Sachs, Nomura downgrade China GDP forecasts as outlook darkens

Goldman Sachs lowered its projection for China's gross domestic product growth to 3% from 3.3%, citing weaker-than-expected July economic data as well as near-term energy constraints

Goldman Sachs Group Inc. and Nomura Holdings Inc. downgraded their forecasts for China’s economic growth further, with a power supply crunch adding more uncertainty to the outlook. 
 

Goldman Sachs lowered its projection for gross domestic product growth to 3% from 3.3%, citing weaker-than-expected July economic data as well as near-term energy constraints. Nomura slashed its forecast to 2.8% from 3.3%.

China’s slowdown deepened in July as a worsening property slump and Covid lockdowns continued to curb business and consumer activity. The central bank unexpectedly cut interest rates this week to help bolster growth, while local governments are set to sell more bonds to ramp up spending.

Economists have turned more downbeat about the growth outlook this year, predicting for months already that the government will miss its ambitious GDP growth target of around 5.5%. The consensus in a Bloomberg survey of economists is 3.8%. Top officials have been downplaying the target recently, and have privately acknowledged that it’s unlikely to meet it this year.

July data, along with muted inflation and sluggish credit growth “confirmed the lack of domestic demand,” Goldman economists led by Hui Shan wrote in a report to clients Wednesday, adding that Covid-19 cases are rising, power supply is stressed due to the hot summer, and major new stimulus is unlikely. 

Nomura economists said the Covid situation has worsened recently, and August activity data could be even worse than July due to the rising number of lockdowns. The current heatwave could also hit growth, it said. 

“Beijing will likely do more to arrest the slowdown, but rolling out a comprehensive stimulus package is of low probability in a year of government reshuffle, while the need for maintaining zero Covid makes conventional stimulus measures much less effective,” Nomura economists including Lu Ting wrote in a note Thursday. 

Several other economists have also cut their forecasts for China this week. Analysts at ING Groep NV and TD Securities Inc downgraded their full-year GDP projections to 4% and 2.9%, respectively.

Goldman said the change in its forecast implies GDP for the third quarter will probably grow 3.5% from a year ago, lower than an earlier projection of 4.3%, while fourth quarter growth would ease to 3.3% from 3.8% previously. 

Nomura economists see GDP expanding 2.9% from a year ago this quarter and 3.3% next quarter.