Goldman Sachs (NYSE:GS) slashed its economic growth forecasts for China on Sunday, stating that current levels of stimulus from the government will provide less support for the economy than previously thought.
The investment bank cut its forecast for 2023 gross domestic product (GDP) to 5.4% from 6%, joining a growing list of major banks that have cut their bets on a Chinese economic recovery this year.
The bank said in a note released on Sunday that the country’s ongoing stimulus was incapable of generating a strong “growth impulse,” and would result in a slower recovery despite the lifting of anti-COVID measures earlier this year.
Goldman Sachs also slashed its outlook for second-quarter GDP to quarter-on-quarter growth of 1% from 4.9%, but forecast an improvement in the second half of the year on potentially more stimulus measures.
The move follows similar annual GDP target cuts from several major banks including UBS Group AG (NYSE:UBS), Nomura Holdings Inc (TYO:8604), Bank of America (NYSE:BAC), and JPMorgan (NYSE:JPM) last week, who also cited a slower-than-expected recovery from the COVID-19 pandemic and an insufficient degree of stimulus measures from Beijing.
But Goldman Sachs and other brokerages still hold a 2023 GDP target that is higher than the 5% forecast by the Chinese government, which was viewed as modest.
The Chinese economy grew 3% in 2022, one of its worst GDP prints on record. Growth had then rebounded in the first quarter of 2023, surging to 4.5% as the country scaled back three years of strict COVID-related restrictions.
But this rebound now appears to be running out of steam, as shown by a string of weaker-than-expected economic readings over the past two months.
China’s manufacturing sector – a major economic driver – is grappling with worsening local and international demand, while the property market has failed to rebound from a three-year downturn.
This spurred a series of interest rate cuts by the People’s Bank of China over the past week, with a cut in its benchmark loan prime rate now expected on Tuesday.