Downgrading their predictions for China’s GDP, Goldman Sachs and Nomura cited weakening demand, uncertainties brought on by the zero-Covid policy, and an energy shortage.
Both Goldman Sachs and Nomura cut their full-year predictions for 2022 from 3.3% to 3.0% and 2.8%, respectively.
The reductions reflect ongoing skepticism among investment banks regarding Beijing’s 5.5% growth objective. Chinese officials warned in July that the nation might not meet its annual GDP target.
The most recent economic figures for July as well as short-term energy shortages brought on by an abnormally hot and dry summer were both mentioned by Goldman’s economists. One of the worst heat waves to hit China in recent memory is putting additional strain on an already fragile electricity grid and forcing some regions to reduce production.
Additionally, economists from both banks noticed a nationwide increase in Covid instances as well as a decline in property investment for July that reduced total investment.
Nomura said it continues to anticipate Beijing will uphold its zero-Covid policy until March 2023, maintaining one of the lowest predictions for China’s growth. It claimed that the property market will continue to be severely hampered by this position. The lowest forecast among those CNBC was tracking at the time, reduced to 3% by UBS in May.
Surprise cut rate
The anticipated rate cuts follow an unanticipated Monday interest rate cut by the People’s Bank of China, which was the second rate cut this year for both its medium-term policy loans and a short-term liquidity instrument.
Beijing’s stimulus reaction could be relatively limited, according to Nomura and Goldman.
Contrary to some people’s worries that there will be too much policy stimulus in H2, the real risk is that Beijing’s policy support may be too little, too late, and too ineffective, according to Nomura.
The unexpected rate decreases, according to Goldman Sachs, do not necessarily herald the start of more aggressive easing. It also noted that policymakers must contend with political as well as economic constraints.
Prior to the 20th Party Congress, “their current focus is probably on preventing more downward risks and ensuring employment and social stability,” the report stated.