Goldman Sachs Group Inc. has reduced its projections for China’s economic growth, citing the Asian country’s limited alternatives for increasing stimulus. Bloomberg stated that the bank cut its forecast for China’s GDP growth this year to 5.4% from 6% earlier.
Goldman Sachs analysts, including Hui Shan, warned in a study that any impending policy easing is unlikely to surpass that adopted in prior downturns, including 2020.
The country’s central bank slashed key policy interest rates last week to decrease borrowing costs and increase optimism, based on data provided last week for May.
On Friday, China’s State Council advocated for “more forceful” economic initiatives. It said that additional procedures were being researched and will be implemented in a “timely manner.”
Goldman Sachs, on the other hand, believes that China’s stimulus for real estate and infrastructure would be “targeted and moderate.” It is due to the declining population, rising debt levels, and President Xi Jinping’s desire to prevent 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.
“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, the federal government is expected to issue special-purpose bonds to support projects.
However, Goldman Sachs analysts do not anticipate the issuance of such special sovereign bonds, since they have only been issued three times in the past during very tough circumstances, including the pandemic in 2020 and the Asian Financial Crisis in 1998, according to the research.
Furthermore, they do not anticipate the government launching another wave of shantytown redevelopment as it did in 2015 when it pumped central bank money into the property market to pay for urban regeneration as well as compensate people whose houses were destroyed as part of that. This increased house values and sales.
Instead, they anticipate the government hastening the issuing of local government special bonds, which are mostly utilized for infrastructure building.
Authorities may also continue to relax property rules in top-tier cities, including as decreasing down-payment requirements, lowering mortgage interest rates, and abolishing purchase limitations, they added.
Officials are also assisting sectors seen as emerging economic development drivers, such as high-end manufacturing and alternative energy vehicles. According to Goldman, although supporting policies like easier lending, tax cuts, and subsidies are expected to persist or perhaps rise, the effect on GDP growth is likely to be modest since these measures have already been in place for years.
