Economists now think China will miss growth expectations

Economists now think China will miss growth expectations
Earlier predictions have been trimmed and the #2 economy could still face a hard landing.
AUG 29, 2023
By  Bloomberg

China’s economic outlook is showing no signs of improvement, with forecasters broadly trimming their expectations for growth, prices and trade and predicting more monetary policy easing.

Economists now see gross domestic product expanding 5.1% in 2023 from the prior year, according to the median estimate in the latest Bloomberg survey. That’s down from an earlier expectation of 5.2% and brings projections closer to the government’s target of about 5% — a number widely seen as conservative when it was set in March. 

The downgrade is attributable in part to lower projections for growth in the third quarter: Economists now see GDP expanding 4.4% in the July-to-September period from a year ago, down from an earlier expectation of 4.6%. Growth is expected to slow to 4.5% in 2024, down from a projection of a 4.8% expansion previously. 

The growth momentum is slowing “due to a worsening residential property investment decline and a drag from poor export numbers,” said Mike Gallagher, director of research at Continuum Economics. The research firm sees GDP expanding 4.9% this year. 

China has as much as a 30% chance of experiencing a “hard landing” this year despite the nation’s efforts at stimulating the economy using fiscal and monetary policy, Gallagher added. 

The pessimism comes as recent data showed the economic outlook worsening for China. Bank loans plunged to a 14-year low last month, while deflation is setting in and exports are contracting. 

The weak economic figures have spurred some action by Chinese officials. The People’s Bank of China this month lowered the rate on its one-year loans by the steepest amount in three years. But even with that interest rate cut — the second this year — Beijing has refrained from unleashing massive stimulus implemented in past downturns. 

Economists see the PBOC trimming that policy loan rate — called the medium-term lending facility rate — by another 10 basis points in the final three months of the year. 

They also projected a 10 basis-point reduction in the five-year loan prime rate, a key rate that guides mortgages. That rate was unexpectedly kept on hold last week, reflecting the government’s difficulty in balancing the need to safeguard the banking system’s stability with trying to boost confidence. 

Economists also maintained projections that the central bank would cut the reserve requirement ratio, or the amount of cash lenders have to keep in reserve, by 25 basis points this quarter.

Expectations for more support have also circulated in Chinese state media. The central bank may consider cutting the RRR in the fourth quarter to improve liquidity in the financial market, according to a front-page report in the China Securities Journal on Tuesday which cited analysts. 

Liquidity in the domestic money market has tightened recently mostly due to an increase in local government bonds, despite the PBOC’s policy rate cut earlier this month, according to the report. The possibility of another interest rate cut can’t be ruled out, according to the report, citing Wen Bin, chief economist at Minsheng Bank.

The economists surveyed by Bloomberg all trimmed their forecasts for major indicators. They now see consumer prices increasing just 0.7% in 2023, down from an earlier projection of 0.9%. The consumer price index declined in July for the first time since February 2021.

Latest News

Slow is smooth, smooth is fast
Slow is smooth, smooth is fast

Chasing productivity is one thing, but when you're cutting corners, missing details, and making mistakes, it's time to take a step back.

Edward Jones layoffs about to hit employees, home office staff
Edward Jones layoffs about to hit employees, home office staff

It is not clear how many employees will be affected, but none of the private partnership’s 20,000 financial advisors will see their jobs at risk.

CFP Board hails record July exam turnout with 3,214 test-takers
CFP Board hails record July exam turnout with 3,214 test-takers

The historic summer sitting saw a roughly two-thirds pass rate, with most CFP hopefuls falling in the under-40 age group.

Founder of water vending machine company, portfolio manager, charged in $275M Ponzi scheme
Founder of water vending machine company, portfolio manager, charged in $275M Ponzi scheme

"The greed and deception of this Ponzi scheme has resulted in the same way they have throughout history," said Daniel Brubaker, U.S. Postal Inspection Service inspector in charge.

Advisor moves: Raymond James, Wells Fargo reel in billion dollar-plus advisor teams
Advisor moves: Raymond James, Wells Fargo reel in billion dollar-plus advisor teams

Elsewhere, an advisor formerly with a Commonwealth affiliate firm is launching her own independent practice with an Osaic OSJ.

SPONSORED Delivering family office services critical to advisor success

Stan Gregor, Chairman & CEO of Summit Financial Holdings, explores how RIAs can meet growing demand for family office-style services among mass affluent clients through tax-first planning, technology, and collaboration—positioning firms for long-term success

SPONSORED Passing on more than wealth: why purpose should be part of every estate plan

Chris Vizzi, Co-Founder & Partner of South Coast Investment Advisors, LLC, shares how 2025 estate tax changes—$13.99M per person—offer more than tax savings. Learn how to pass on purpose, values, and vision to unite generations and give wealth lasting meaning