Nikkei survey forecast: China’s GDP growth in the third quarter is 4.6%

According to the survey of Chinese economists by the Nihon Keizai Shimbun (Chinese version: Nikkei Chinese website) and Nikkei QUICK News, the average forecast for China’s real gross domestic product (GDP) in July-September 2024 is 4.6% year-on-year. The growth rate is expected to slow from 4.7% in April-June due to the deepening deflation concerns caused by the real estate downturn.

The largest and smallest forecast increases are 4.9% and 4.3%, respectively. The seasonally adjusted year-on-year growth rate, which shows the momentum of the economy, is 1.1%, a slight recovery from the 0.7% forecast in April-June, but overall the outlook is more severe.

The average forecast for the full-year GDP growth rate in 2024 is 4.8%, 0.1 percentage point lower than the previous survey in June and slightly below the government’s target of “around 5%”. On September 24, the People’s Bank of China launched a rare new round of easing policies, while cutting the reserve requirement ratio and the actual policy rate.

In addition, Reuters recently reported that China is planning to issue about 2 trillion yuan of special government bonds to stimulate consumption. The survey was conducted before speculation about special government bonds emerged, and economists may revise their growth expectations if the special government bonds are officially announced.

Mizuho Bank’s Hideki Ito believes that “the real estate market will remain sluggish in the second half of 2024, and the slowdown in consumption caused by the “negative asset effect” will not change.” The Chinese government has introduced a series of measures, including buying back housing stock, but he believes that these measures “have not fully worked.”

Real estate is believed to account for about 70% of Chinese household assets, and falling house prices will suppress consumer confidence, which is directly related to the negative asset effect.

Alex Muscatelli of Fitch Ratings warned that “the risk of deflationary pressure has become more obvious”, and Tetsuji Sano of Sumitomo Mitsui Desi Investment Management (Hong Kong) Co., Ltd. analyzed that “unless the government shows its willingness to take radical measures without restricting the budget, (deflationary) sentiment will not improve.”

The practice of using overseas demand to drive manufacturing exports to make up for the lack of domestic demand is approaching its limit. The industrial production index rose 4.5% year-on-year in August, down from 5.1% in July.

In August, Indonesia imposed emergency import restrictions on textile imports to limit Chinese products. Moves to deal with the influx of cheap Chinese goods have emerged in many parts of the world. “Trade barriers against Chinese products are rising, and the boost to manufacturing is weakening,” said Matthew Roger of Legal & General Investment Management.

The central bank has introduced monetary easing measures to stimulate the economy, but this may widen the interest rate gap with the United States, leading to a depreciation of the renminbi and capital outflows. Li Zhennan of Swiss Bank Swiss Bank believes that the US Federal Reserve’s (FRB) sharp interest rate cut of 0.5% in September “makes it easier for the central bank to adopt an accommodative policy.”

The survey shows that after the US rate cut, the RMB exchange rate against the US dollar will be 7.12 yuan per dollar at the end of 2024. Compared with 7.23 yuan in the last survey, the RMB has appreciated.