Major U.S. investment banks have cut their growth projections for China this year.
The latest data on the economy of China have prompted some major US banks, such as Goldman Sachs and Citibank, to cut their growth forecasts for the Dragon. At the same time, analysts at Nomura believe that the Asian giant could face a second wave of "economic shocks".
How much truth is there in these analyses and how much is dictated by the propaganda inherent in the new Cold War that pits the two main powers of the world against each other? It is difficult to answer but let’s go in order. According to the numbers recorded by the Chinese National Bureau of Statistics (NBS), the country’s industrial production increased by 4.5% in August on an annual basis, slowing down from the 5.1% rate in July and marking the slowest growth since March.
Retail sales, a key indicator of consumption, rose 2.1% in August, decelerating from a 2.7% increase in July amid extreme weather and a summer travel spike. Analysts had expected growth to be 2.5%. Rounding out the picture, foreign direct investment into China reached 580.19 billion yuan (US$81.80 billion) in the January-August period, down 31.5% from the same period last year.
U.S. big banks’ analysis
Based on such a backdrop, major U.S. investment banks have cut their growth projections for China this year. Goldman Sachs and Citigroup, for example, cut their full-year economic growth forecasts to 4.7%, after the Dragon’s weak economic activity in August highlighted Beijing’s weak recovery and its need for additional stimulus to support consumer demand.
Goldman Sachs had initially forecast annual economic growth of 4.9%, while Citigroup had stopped at 4.8%. But the uncertain growth has led global brokerage firms to scale back their 2024 projections well below the government’s target of around 5%. “We believe the risk of China missing its annual GDP growth target of ‘around 5%’ is rising, and therefore the urgency for further demand easing is also increasing,” Goldman Sachs said, keeping its 2025 GDP growth forecast for the country at 4.3%.
Citigroup cut its end-2025 forecast to 4.2% from 4.5%, citing a lack of major catalysts for domestic demand. “We believe fiscal policy needs to intensify to break the austerity trap and implement growth support in a timely manner,” Citigroup economists said. Bank of America lowered its 2024 GDP growth forecast for China to 4.8%, below the government’s 5% target.
The Situation in China
Nomura noted that in China, while there has been an increase in government bond financing, infrastructure investment growth has slowed sharply as local governments are constrained by tight fiscal conditions and “the real estate sector remains in deep contraction.” “Amid deep and broad wage cuts across the financial sector, the pace of ongoing house price declines in first-tier cities accelerated in August,” the Japanese group’s analysts said.
“New home completions recorded the largest contraction since the summer of 2022 when a large-scale mortgage boycott was triggered by a delay in the delivery of numerous pre-sold homes, indicating little progress since Beijing promised to ensure the delivery of pre-sold, unfinished homes,” Nomura experts added, explaining that the Chinese economy risks facing a second wave of shocks.
“The August data essentially rules out the possibility of hitting the official 5% growth target in 2024 unless the top brass is willing to launch a stimulus bazooka ,” said Raymond Yeung, chief China economist at Australia & New Zealand Banking Group Ltd. But beware of U.S.-China relations: if they deteriorate further, the economic situation could become even more complicated.
Original article published on Money.it Italy 2024-09-28 07:37:00. Original title: Perché le grandi banche Usa tagliano le prospettive di crescita della Cina?
