Economists stick to 2024 China outlook while assessing stimulus
CHINA’s recent stimulus boost stoked some optimism about the economy’s recovery in the coming quarters, but economists are keeping their 2024 growth forecasts steady for now to assess how the measures will play out.
The world’s second-largest economy is projected to grow 4.5 per cent next year, according to the median estimate in a Bloomberg survey of 48 economists, conducted after last week’s official announcement of the additional stimulus. The result was unchanged from an earlier poll. The number of respondents is smaller than the usual pool due to a shorter period for submissions.
Meanwhile, the forecast for expansion this year has been upgraded to 5.2 per cent, 20 basis points (bps) higher than both the prior survey and Beijing’s official target of about 5 per cent, after China released better-than-expected data for the third quarter.
China increased its headline deficit last week to the largest in three decades and unveiled a one trillion yuan (S$187.4 billion) sovereign debt package for construction projects. While the rare moves signalled that policymakers want to prevent a sharp growth slowdown in 2024, the stimulus remained measured and will take time to show effects.
“Beijing’s rare budget expansion marks a critical step in reflation,” Morgan Stanley economists including Robin Xing wrote in a note last week. “We expect growth and inflation to improve, but in a subpar fashion. More stimulus and reforms are likely needed, and exiting deflation could be a two-year journey.”
Morgan Stanley upgraded its China growth forecast to 5.1 per cent for this year from as low as 4.8 per cent previously after Q3 gross domestic product data, and kept unchanged the projection for 2024 at 4.2 per cent. The bank held both positions after the stimulus was announced.
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The People’s Bank of China may cut the amount of cash that lenders must hold as reserves, known as the reserve requirement ratio (RRR), in the coming weeks to help fund government bond sales.
Interbank liquidity already tightened in recent months due to a surge in local government bond supply. Cash conditions are expected to remain strained in the coming months as more government notes, including additional sovereign debt, hit the market.
Economists now expect the central bank to cut the RRR by 25 bps by the end of this year. That is earlier than the prediction for such a move in Q1 of 2024, in the previous survey.
Official data on Tuesday (Oct 31) showing a contraction in China’s manufacturing sector in October underscores just how fragile the economic recovery is, with calls for more policy support growing.
Property remains the biggest threat to the economic outlook, while mounting local government debt is limiting authorities’ ability to spur investment. The sustainability of a consumption rebound is in question amid persisting deflationary pressures and a sluggish job market.
“Beijing is taking a firm stance on supporting growth, as seen with the recent issuance of one trillion yuan in sovereign bonds,” HSBC Global Research economists including Jing Liu wrote in a note on Monday. “This should have a positive effect for growth, though the effect may be more back-loaded into next year.”
HSBC has yet to make any revisions to its late-September forecasts for the Chinese economy to grow 4.9 per cent this year and 4.6 per cent the next.
“Notwithstanding the short-term cyclical improvement, the Chinese economy will continue to be faced for some time with fierce headwinds from the property sector and related debt issues, from the global growth slowdown and from ongoing tensions with the US, EU, and the West,” said Arjen van Dijkhuizen, senior economist at ABN Amro. The bank predicts China’s growth to be 5.3 per cent this year, and 4.7 per cent in 2024.
“Coupled with Beijing’s policy shift away from growth maximisation towards goals related to national security and self-sufficiency, we expect China’s structural slowdown to continue and annual growth to fall below 5 per cent from 2024 onward,” he said, also noting longer-term challenges including demographics and climate change. BLOOMBERG
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