Goldman Sachs and Citigroup have both revised their projections for China's economic growth in 2024 downward to 4.7%, signaling increasing concern about the country's economic trajectory. The adjustments come in the wake of a slowdown in China's industrial output, which reached a five-month low in August, intensifying worries about the world's second-largest economy's ability to rebound.
China's industrial output grew by 4.5% year-on-year in August, down from a 5.1% increase in July, according to data from the National Bureau of Statistics (NBS). This marked the slowest pace of growth since March. Additionally, retail sales, a critical indicator of consumer spending, rose by only 2.1% in August, a drop from the 2.7% growth observed in July. This deceleration in consumer activity came despite expectations of a 2.5% increase and was influenced by extreme weather conditions and the tail end of the summer travel season.
Goldman Sachs, which had previously forecasted a 4.9% growth for China in 2024, cited the sluggish economic activity as a key reason for lowering its projection. The investment bank noted in a report dated September 15 that the risk of China missing its official growth target of around 5% for the year is increasing. This heightened risk underscores the urgency for Beijing to implement more robust demand-side stimulus measures to reinvigorate the economy. Despite the downgrade, Goldman Sachs maintained its 2025 GDP growth forecast for China at 4.3%.
Citigroup, on the other hand, not only reduced its 2024 forecast from 4.8% to 4.7% but also revised its 2025 growth projection downward, from 4.5% to 4.2%. The bank pointed to the lack of significant catalysts for domestic demand as a critical factor in its revised outlook. Citigroup's economists emphasized the need for more aggressive fiscal policies to break what they described as an "austerity trap" and to deploy timely growth support measures.
The broader economic picture in China continues to deteriorate, with real estate prices falling for the 15th consecutive month in August. The recent data showed monthly declines of 0.73% in August, following a 0.67% drop in June and a 0.65% decrease in July. Existing home sales have also suffered, marking their 16th straight month of decline, signaling deep-rooted issues in the property sector.
Industrial activity in China is equally bleak, with significant downturns in steel production, a key indicator of economic health. This weakness has led to growing skepticism about China's ability to achieve its 5% growth target for 2024, even with potential stimulus measures.
In response to these challenges, there are signs that the People's Bank of China (PBOC) might be preparing to take action. Over the weekend, the PBOC issued a rare statement alongside disappointing credit data, suggesting that further monetary easing could be on the horizon. The central bank indicated that it would focus on maintaining price stability and supporting a mild rebound in prices, with plans to lower financing costs for businesses and households and ensure ample liquidity.
However, the specifics of these potential stimulus measures remain unclear. Analysts speculate that the PBOC may leak details in the coming weeks, but the effectiveness of such measures is uncertain. Some experts believe that only a coordinated and forceful response from the central government could effectively address the entrenched economic weakness.
