JPMorgan, Citi, Goldman cut China’s GDP forecast a few times this year

BEIJING – International investment firms have changed their GDP forecasts for China almost every month so far this year, with JPMorgan making six adjustments since January.

That is according to CNBC analysis of the companies’ notes. JPMorgan did not immediately respond to a request for comment.

The US investment bank most recently cut its July China GDP forecast to 5%, down from 5.5% previously.

That came alongside cuts this month from Citi and Morgan Stanley to 5%.

The average forecast among six firms surveyed by CNBC now stands at 5.1%, close to the “around 5%” target Beijing announced in March.

Citi’s latest forecast marks the firm’s fourth change this year. Morgan Stanley has adjusted its forecast only once since it was set in January.

In the same period, Nomura changed its forecast four times, while UBS adjusted it three times and Goldman Sachs changed its forecast twice.

The investment banks mostly revised their forecasts higher early this year after China’s first upswing, after three years of strict Covid controls.

The latest cuts come as fresh economic data points to slower-than-expected growth and authorities show little inclination to embark on large-scale stimulus. Second-quarter GDP rose 6.3% from a year ago, missing the 7.3% growth that analysts polled by Reuters had predicted.

However, the disappointment in second-quarter GDP growth is due to official revisions to China’s quarter-on-quarter growth last year, according to Rhodium Group’s Logan Wright and a team.

The resulting low number helps Beijing make its case for supporting the economy, analysts said in a July 17 report. “Understand what you see in this year’s GDP data: these are artificially constructed narratives for various audiences, not reports of China’s economic performance.”

The National Bureau of Statistics did not immediately respond to CNBC’s request for comment.

Instead of releasing multiple data readings, the agency reveals quarterly GDP relatively soon after the end of the period, then issues revisions.

Statistics Norway has also made public statements about punishing local authorities for falsifying data. The accuracy of official data in China has long been in doubt.

Goldman Sachs on Friday noted the seasonal revisions but maintained its 5.4% forecast for China’s growth. “On the net, we do not think the surprises are either consistent or large enough for us to make major adjustments to our growth forecast for China this year.”

Researchers have sought alternatives to measure growth.

One organization is the US-based China Beige Book, which claims to regularly survey companies in China to publish reports on the economic environment.

Earlier this year, the firm’s data showed there was no revenge spending wave or a bombastic recovery, said Shehzad Qazi, New York-based managing director of China Beige Book.

“Wall Street’s predictions of blockbuster growth in China were first based on hype, then fueled by China’s inflated GDP prints into early 2023.”

Qazi testified this month at a hearing before the US Select Committee on the Chinese Communist Party.

Investment banking research is often known as the “sell side”, as it is intended to inform buyers about financial products and company stocks.

Regarding China, Qazi pointed out that “investment banks are not only motivated to sell a “prosperous China story, but given their business interests in China, they are also reluctant to publish views that could be seen as critical of China’s economy.”

The World Bank and the International Monetary Fund also publish regular economic forecasts for China and other countries. However, their reporting schedule means that predictions may not fully match the current economic situation.

In June, the World Bank raised its forecast for China’s growth this year to 5.6%, up from 4.3% previously.

In April, the International Monetary Fund raised its forecast for China’s GDP to 5.2%, up from 4.4% previously. This month, its spokesperson noted that growth slowed in China, and said an “updated forecast” would be reflected in the IMF’s next World Economic Outlook.

Chinese officials have stressed in recent weeks that the country is on track to meet its annual growth target of around 5%.

Among the six investment firms CNBC looked at, the highest China GDP forecast so far this year was JPMorgan’s figure of 6.4% — as the bank adjusted for the second time in April alone.

Overall, the range of the firm’s forecasts has spread over 1.4 percentage points, the most of any in the CNBC analysis.

Although businesses and investors have expressed uncertainty about China’s economic trajectory in the short term, analysts expect growth in the world’s second-largest economy to continue to pick up in the longer term.

“Overall, there is a case emerging for a cyclical upturn in China’s economy in early 2024, even without any meaningful policy support in the second half of 2023,” the Rhodium analysts said.

They said that given four quarters, a steady pick-up in household consumption should help boost employment in the services sector, while industrial inventories are likely to need inventory along the way.