Many economists are cutting their forecasts for China’s economic growth this year after a fourth month of disappointing data prompted fresh looks.
At the start of 2013, investment bank economists had high hopes that a rebound that appeared in the final quarter of last year would gather more steam. A survey of 18 economists by The Wall Street Journal late last year showed the median forecast for economic growth in 2013 at 8%, up from the 7.8% rise China’s economy posted last year.
But now the numbers are telling a different story. A new survey of 12 economists this week showed that the median forecast has since fallen to 7.8%.
J.P. Morgan economist Haibin Zhu has become the latest to trim his estimate for China’s gross domestic product growth. After China released disappointing April industrial output data on Monday, the economist lowered his GDP growth forecast for 2013 to 7.6% from 7.8%. Mr. Zhu cited evidence of weak demand and of softness in manufacturing spreading to the services sector. The bank’s original forecast late last year was 8%.
“The April data suggests that domestic demand remains on the weak side, and by extension has also caused the softening in the service sector,” Mr. Zhu wrote in a research note.
“Despite strong growth in real-estate investment and railway investment, manufacturing investment continued to slow down and the recovery in industry production is weaker than expected,” he said.
Industrial output, the key monthly measure of growth, came in at 9.3% year on year in April, up from 8.9% in March but below market expectations. Retail sales remained lackluster, and investment showed no sign of accelerating despite massive increases in new lending in the first quarter.
Only exports appeared to hold up—with a 14.7% year over year rise—but economists have attributed much of the upturn to over-invoicing by some exporters to take advantage of tax rebates.
The generally weak numbers for April followed disappointing first quarter GDP growth of 7.7% year over year—down from 7.9% in the fourth quarter of last year.
Economists pointed to several drags on economic growth, including stalled factory output, policies from top leaders to cut spending on everything from official banqueting to red-carpet receptions, controls on the unofficial banking sector—better known as shadow banking—and Beijing’s tolerance of lower growth rates as leaders pursue a painful restructuring of the economy.
Last week Standard Chartered PLC cut its forecast for the year to 7.7% from 8.3% previously, citing limited momentum in infrastructure, restrictions on credit to local government financing vehicles, slow land sales outside big cities and weak consumption in some sectors.
ING was at the extreme end of the downgrades, slashing its outlook to 7.8% from 9% previously.
“Our 9% full-year GDP growth forecast was predicated in part on stronger global growth to translate into stronger domestic spending growth. That did not happen in the first quarter,” said ING chief economist Tim Condon.
Some economists are sticking to their previous forecasts. Daiwa maintained its 8.1% call, pointing to monthly surveys of Chinese factory activity that show some expansion. Daiwa also cited a pickup in auto sales and accommodative monetary policy in the first quarter as positive signs for the outlook.
Capital Economics also maintained its forecast of 8%. “Given the extent of credit expansion over the last year, we think the most likely scenario is that growth will stabilize or even pick up a little over the next few quarters,” its China economist Mark Williams said.
HSBC lowered its forecast but its new prediction—8.2% down from 8.6%—is still at the high end, as China economist Qu Hongbin believes new leaders will still need relatively fast growth. “In our view, the [government’s] target of 7.5% is more likely a minimum threshold rather than a number that Beijing is necessarily happy with,” an HSBC note said, referring to the official goal for the year’s growth. – wsj