Negative Factors Piling Up in China's Economy... Annual Growth Rate Slumps to 4% Range?

JP Morgan Lowers Growth Forecast to 4.8%
Barclays Also Downgrades to 4.5%

As domestic demand stagnates and concerns over defaults by major real estate companies accumulate, forecasts that China's economic growth rate will remain in the 4% range this year are gaining traction. The sluggish trend is expected to continue into next year, with some analysts suggesting that for the first time since the Mao Zedong era, growth could fall below 5% for three consecutive years.

[Image source=EPA Yonhap News]

According to Bloomberg on the 15th (local time), JPMorgan Chase lowered its forecast for China's GDP growth rate this year from 5.0% to 4.8%. Even within the investment banking sector, JPMorgan, which had previously been relatively optimistic about China's economy, had expected a 6.4% growth rate as recently as early May.

JPMorgan's Chief China Economist Zhuhai Bin and his team cited the weak economic indicators released in July as the basis for their revision, and they also forecast next year's growth rate to be only 4.2%. According to Bloomberg's aggregation, this would mark the first time since the Mao Zedong era that China's growth rate has been below 5% for three consecutive years.

Barclays also lowered its growth forecast by 0.4 percentage points to 4.5%, maintaining its 4% forecast for 2024. Barclays' analyst team pointed out the lack of effective stimulus measures amid disappointing economic indicators such as consumption, housing, exports, and credit. Additionally, Japan's Mizuho Bank downgraded its forecast for China's growth rate from 5.5% to 5.0%. Serena Zhou, Mizuho Bank's Chief China Economist, expressed concerns about the ongoing weakness in the real estate market and its resulting headwinds.

On the other hand, there are views that China's economy could rebound in the third quarter. Standard Chartered maintained its annual growth forecast of 5.4%, expecting the third-quarter growth rate to reach 5.0%. Economist Wei Li anticipated revitalization in the service sector and an expansion of government stimulus measures. UBS assessed that deregulation of the real estate market and additional monetary and fiscal measures could help boost growth in the second half of this year. UBS forecasts China's economic growth rate at 5.2% for this year.

Earlier, the key economic indicators for July released by China's National Bureau of Statistics all fell short of estimates. Retail sales in July increased by only 2.5% year-on-year, significantly below the forecast of 4.5%. The industrial production growth rate was also 3.7%, missing the expected 4.4%. Particularly, the sudden suspension of the youth unemployment rate announcement, considered a critical economic indicator, heightened market concerns. Until now, the National Bureau of Statistics had separately published unemployment rates by age group (16?24 years, 25?59 years) alongside the nationwide urban unemployment rate each month, but from this month, it abruptly stopped releasing age-specific unemployment data. China's youth (16?24 years) unemployment rate hit a record high of 21.3% in June. Although the official reason was statistical optimization, the market interprets this as an attempt to conceal worsening conditions.

On the same day the disappointing economic data was released, the People's Bank of China cut short-term policy interest rates to support liquidity. Breaking market expectations of a rate hold, the central bank lowered the one-year Medium-term Lending Facility (MLF) loan rate from 2.65% to 2.50%, a 0.15 percentage point cut, marking the first rate cut in two months since June. On the same day, the People's Bank also cut the seven-day reverse repurchase agreement rate from 1.9% to 1.8%, a 0.1 percentage point reduction. The liquidity injection from the MLF and reverse repo rate cuts is expected to total 605 billion yuan (approximately 110.594 trillion Korean won). The market also anticipates that the Loan Prime Rate (LPR), which serves as China's benchmark interest rate, will be lowered when it is announced on the 21st.

This content was produced with the assistance of AI translation services.