A person works on the construction site of an apartment building in Beijing, China, September 6, 2023. REUTERS/Tingshu Wang/File Photo Obtain licensing rights
BENGALURU (Reuters) – A Reuters poll of economists showed that the Chinese economy will grow at a lower rate than expected in the current and next years, with the real estate market, which was once the engine of growth in the world, facing difficulties. .
The world’s second-largest economy is facing difficulties after a short recovery after Covid-19, burdened by huge debts due to decades of infrastructure investment and real estate deflation, which poses risks not only to itself but also to the global economy.
With 70% of household wealth tied to the faltering real estate market, coupled with high youth unemployment rates, weak consumer demand and the reluctance of struggling private companies to invest, policymakers face an uphill task in reviving growth.
“The main reason is the property sector,” said Julian Evans-Pritchard, head of China economics at Capital Economics in Singapore. “That source of growth has now evaporated and is not coming back.”
“For a long time we have been more pessimistic than most people…but even we have been surprised by the speed with which growth has declined. We may still have a further slowdown ahead of us.”
A Reuters poll conducted from September 4 to 11, which included 76 analysts from inside and outside mainland China, expected the economy to grow 5 percent this year, lower than the 5.5 percent forecast in the July poll. Expectations ranged between 4.5% and 5.5%.
While almost all economists lowered their growth forecasts for this year and next compared to the previous survey, the size of those cuts remains marginal, leaving room for further cuts.
Some economists warned that the government’s growth target of about 5% for this year may not be achieved, because political stimulus from Beijing will not be enough to stabilize the economy.
While recent data showed signs of improvement in the economy, some economists said more political support was needed for the struggling real estate sector. This sector represents nearly a quarter of China’s economy.
Growth was expected to slow to 4.5% next year and 4.3% in 2025. After expanding by 6.3% in the last quarter, the economy was expected to grow just 4.2% this quarter, followed by 4.9% in the next quarter. It drops to only 3.9% in the second quarter. First quarter of 2024.
“This slowdown may be just the tip of the iceberg,” said Pingnan Ye, chief economist at China Merchants International Bank in Hong Kong, adding that the downside risk is that “household consumption may improve more slowly than many expect.”
“Alongside the slowdown in real estate and exports, we still have trade tensions between the US and China, and the recent diversification of supply chains outside of China will add to the downside pressures.”
A strong majority of economists who answered an additional question said that risks to 2023 and 2024 GDP growth forecasts were skewed to the downside.
Economists also lowered their consumer price inflation forecast to 0.6% for this year and 1.9% for next year, down from the previous forecast of 1.1% and 2.1% in the July poll.
Despite the decline in inflation, the People’s Bank of China was expected to keep key interest rates unchanged this year.
In response to a question about whether the authorities would provide a strong economic stimulus package, more than three-quarters of economists, 17 out of 21, answered in the negative.
“Local governments, responsible for (about) 85% of expenditures, are burdened with debt. This limits the ability to provide meaningful stimulus without undermining their already fragile finances,” said Tiwi Mevesen, chief strategist at Rabobank. Holland.
(See other stories from the Reuters World Economic Poll:)
Reported by Vivek Mishra. (Additional reporting by Devayani Sathyan) Analysis by Anant Chandak. Survey conducted by Veronica Khongwer in Bengaluru and Jing Wang in Shanghai; Editing by Kevin Yao, Ross Finley and Sam Holmes
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