Goldman Sachs "Limited Economic Stimulus in China"
JP Morgan, UBS, and Nomura Also Lower Growth Forecasts
As fears of 'deflation (falling prices amid economic stagnation)' engulf China's economy, global investment banks are consecutively lowering their economic growth forecasts for China this year.
According to Bloomberg on the 18th (local time), the U.S. investment bank Goldman Sachs lowered its forecast for China's gross domestic product (GDP) growth rate this year from 6% to 5.4%. It cited the limited scope of economic stimulus measures by the Chinese government as the basis for the downward revision.
Goldman Sachs explained, "The level of future policy easing will not exceed past levels, including during the 2020 downturn," adding, "We believe that policymakers are likely to face constraints in implementing meaningful stimulus measures due to economic and political considerations, which means the growth headwinds are likely to persist."
Earlier, on the 16th, the State Council of China stated that stronger policies are needed to stimulate the economy, that new measures are being studied, and that they will be adopted at an appropriate time. Prior to the State Council's announcement, foreign media reported that the Chinese government would announce a policy package containing at least 12 stimulus measures aimed at revitalizing the real estate and domestic economy. This comes as a red light has been lit on achieving the Chinese government's growth target of 5% this year, with expectations that the policy package will include interest rate cuts and easing of housing purchase restrictions.
Goldman Sachs predicted, "Repeating the old approach of using real estate and infrastructure for a strong economic rebound contradicts the 'high-quality growth' repeatedly emphasized by the recent government," and added, "Stimulus measures will be targeted and moderate."
In particular, contrary to some expectations, it is believed that the Chinese government will not issue special treasury bonds for economic stimulus. China has issued special treasury bonds only three times so far, including during the 1998 Asian financial crisis and the 2020 COVID-19 pandemic.
Despite the lifting of COVID-19 lockdowns at the end of last year, concerns about deflation have grown, leading other investment banks to also lower their growth forecasts for China this year. Deflation refers to a phase where prices fall and economic activity stagnates, and recent Chinese economic indicators are increasing concerns about entering deflation. China's consumer price index (CPI) growth rate in May fell by 0.2 percentage points compared to the previous month, while retail sales and industrial production also slowed in the same month. Exports in May contracted by 7.5% compared to a year earlier, showing negative growth.
Accordingly, U.S. JP Morgan lowered its growth forecast for China this year from 5.9% to 5.5%, and Swiss UBS also revised its forecast down from 5.7% to 5.2%. British Standard Chartered reduced its forecast from 5.8% to 5.4%. Japanese Nomura Holdings projected 5.1%, which is 0.4 percentage points lower than its previous forecast of 5.5%.
Lu Ting, an economist at Nomura Holdings, forecasted, "The decline in corporate confidence, negative sentiment, a fiscal cliff caused by the collapse of real estate sales, limited policy tools, delays in decision-making, and conflicts may combine to prevent stimulus measures from reversing the situation."
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