Why we’ve slashed our Chinese growth forecast

David Rees

Generally poor consumer confidence and structural changes in the housing market have caused us to reassess the outlook.

Economic forecasting can be a thankless task, and the latest round of revisions to our expectations for China came with a large portion of humble pie. We previously expected GDP growth of 6.5% this year to beat consensus expectations. A marked deterioration in the recent incoming data, and lack of urgency from the government to stimulate activity has subsequently forced us to cut our projection to just 4.8%.

The premise of our relatively upbeat view had been that China’s economy would enjoy a “sugar high” of stronger growth, as the relaxation of the zero-Covid policy led to a burst of activity in transport related services. While the absence of large, excess household savings meant we did not expect this to last more than two or three quarters, we nonetheless expected it to be sufficient to drive solid full-year growth.

Transport-related services did see an astonishing pick-up in activity. For example, railway and airline passenger numbers, which had previously been a decent guide to consumer spending, were up by 500% year-on-year in April. But as the chart below shows, the acceleration in retail sales was nowhere near the scale implied by passenger numbers.

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