Wall Street firms lower China GDP projections after disappointing Q2 print
China's slower-than-expected second quarter growth is spurring Wall Street firms to slash their yearly gross domestic product forecasts for the world's second-largest economy.
Morgan Stanley and JPMorgan economists have cut their projected growth in China to 5% this year, down from 5.7% and 5.5%, respectively.
Experts are pointing to China's property market still struggling to gain its footing. Property investment dropped 7.9% in the first six months of 2023, after sliding 7.2% during the same period last year.
"Since 2Q, housing market weakness has intensified in both demand (related to weak income expectations and weak house price expectations) and supply (weak incentive for private developers to buy new land and start new projects) sides," said economists at JPMorgan.
"This points at a major challenge for policymakers of how to balance the long-term goal of economic transformation and near-term objective of growth stabilization," they added.
As a result, economists believe the government will hold back on the stimulus they believe is necessary to reinvigorate the economy. In June, China's central bank lowered a short-term lending rate for the first time in 10 months to help drive its recovery following last year's COVID lockdowns.
"To counteract persistent growth headwinds (property slowdown and confidence deficit in particular), we expect more (targeted) easing measures in coming months, with a focus on fiscal, housing and consumption, although the magnitude of stimulus should be smaller than in previous easing cycles," wrote Goldman Sachs economists in reaction to China's GDP print.
China commentator and Yale Law Professor Taisu Zhang believes the amount of governmental action and stimulus needed to improve economic sentiment is "quite enormous."
"The general impression among academic observers, which I share, is that the central government still has quite a bit of unused policy firepower... but has thus far been somewhat hesitant to put its money where its mouth is," wrote Taisu Zhang via Twitter on Monday.
China's GDP grew 6.3% year over year in the second quarter. Wall Street analysts had expected 7.3%, per Reuters.
Given that China was in strict lockdowns last year, economists have increasingly looked at the quarter-over-quarter change in GDP, which rose only 0.8% for the last three months ending in June, versus 2.2% in the prior quarter.
Youth joblessness currently sits above 21% and is expected to rise again in July.
Ines Ferre is a senior business reporter for Yahoo Finance. Follow her on Twitter at @ines_ferre
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