Goldman Sachs slashes Chinese GDP forecast on Covid checks

Since March, mainland China has struggled to contain its worst Covid outbreak in two years. Notably, the metropolis of Shanghai, pictured here on May 18, only this week began discussing resuming normal activity – with a mid-June target.

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BEIJING — Analysts at Goldman Sachs cut their forecast for China’s GDP to 4% on Wednesday after April data showed a decline in growth as Covid-19 controls restricted business activity.

The new forecast falls even further short of the growth target of “around 5.5%” announced by the Chinese government for the year in March.

“Given the damage to the economy from Covid in Q2, we now expect China to grow by 4% this year (vs. 4.5% previously),” Hui Shan and a Goldman team wrote. in a report Wednesday. This prediction assumes there will be significant government support, in addition to measures to stabilize the property market and control Covid outbreaks.

Since March, mainland China has struggled to contain its worst Covid outbreak in two years. In particular, the metropolis of Shanghai only began this week to begin discussions on the resumption of normal activity – with a target of mid-June.

Amid weak April data, Goldman analysts pointed to a plunge in housing starts and home sales, half the credit growth markets expected and a drop below 1% for rising prices. consumption, excluding food and energy.

Other data for April released on Monday showed an unexpected drop in industrial production and a worse-than-expected 11.1% drop in retail sales from a year ago. Exports, a major driver of growth, rose 3.9% in April from a year earlier, the slowest pace since a 0.18% increase in June 2020, according to official data accessed via Wind Info.

“The weak data highlights the tension between China’s growth target and the zero Covid policy that is central to China’s growth outlook,” Goldman analysts said.

They noted how Chinese leaders have emphasized their “zero-Covid momentum” policy, and how the news that China will not host the Asian Cup next summer due to Covid reflects the state conservative-minded Beijing.

“We now expect the reopening will not begin until the second quarter of 2023 and the process will be more gradual and controlled than previously thought,” Goldman analysts said.

“That is why our GDP growth forecast for 2023 only increases by a quarter of a point to 5.3% (vs. 5.0% previously) despite the half-point downward revision of the growth forecast for the year 2022.”

Other banks cut forecasts

On Monday, Citi – which had one of China’s highest GDP forecasts – cut its growth outlook to 4.2% from 5.1%.

A few days earlier, JPMorgan had cut its estimate to 4.3% from 4.6%. Morgan Stanley cut its target at the end of April to 4.2% from 4.6%.

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