Goldman Sachs Group Inc. has cut its forecasts for China’s economic growth as it believes the Asian country has limited options to boost stimulus. The bank reduced its estimates for China’s gross domestic product (GDP) growth this year to 5.4% from 6% previously, Bloomberg reported.
In a report, economists at Goldman Sachs, including Hui Shan said any upcoming policy easing is unlikely to exceed those implemented in previous downturns including 2020.
Data released last week for the month of May showed the recovery was weakening and the country’s central bank cut key policy interest rates to lower borrowing costs and boost sentiment.
China’s State Council, on Friday, had called for “more forceful” policies to support the economy. It said that new measures were being studied and would be adopted in a “timely manner.”
However, Goldman Sachs expects that China’s stimulus for property and infrastructure would probably be “targeted and moderate”. It is because of the shrinking population, elevated debt levels and President Xi Jinping’s call for curbing property speculation.
“Going down the same old route of using property and infrastructure to engineer a strong economic rebound would be inconsistent with the type of ‘high-quality growth’ that the leadership has been emphasizing repeatedly,” the report said, as per Bloomberg.
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“We judge that growth headwinds are likely persistent while policymakers are constrained by economic and political considerations in delivering meaningful stimulus,” said the Goldman economists.
Meanwhile, there were expectations that the central government may issue special-purpose bonds to fund projects.
However, economists at Goldman Sachs do not expect the issue of such special sovereign bonds, as these have only been sold three times in the past during particularly difficult periods including the pandemic in 2020 and during the Asian Financial Crisis in 1998, the report added.
Moreover, they also do not expect the government to launch another round of shantytown redevelopment like it did in 2015, which injected central bank money into the property market to pay for urban renewal and also compensate households whose homes were demolished as part of that. That led to a surge in property prices and sales.
Instead, they expect the government to accelerate the issuance of local government special bonds, which are mainly used for infrastructure construction, Bloomberg report said.
Authorities may also continue to ease property policies including lowering down-payment requirements, cutting mortgage interest rates and removing purchase restrictions in top-tier cities.
Officials are also supporting industries considered as new growth drivers of the economy, such as high-end manufacturing and new energy vehicles. While supportive policies such as easier lending, tax cuts and subsidies are likely to continue or even increase, the impact on GDP growth is likely limited because these plans have already been in place for years, according to Goldman, the Bloomberg report added.
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Updated: 19 Jun 2023, 01:06 PM IST
Source: livemint.com
