Morgan Stanley is the latest among some of the major brokerages to cut China’s economic growth forecast for this year, following a spate of disappointing data from the country and worries over its embattled property sector. The Wall Street bank now sees China’s gross domestic product (GDP) growing 4.7% this year, down from an earlier forecast of 5%, according to a note released on Wednesday. It has also lowered its 2024 GDP forecast to 4.2% from 4.5%.
Earlier this week, J.P.Morgan cut China’s 2023 GDP growth forecast to 4.8% from 5% earlier, while Barclays cut it to 4.5%. Beijing had set a growth target of around 5% for this year.
Morgan Stanley lowered forecasts to “factor in a steeper capex (capital expenditure) slowdown amid deleveraging in the property sector and by Local government financing vehicles (LGFVs), with knock-on effects on consumption,” economists led by Robin Xing said in the note. China’s property sector has been grappling with a liquidity crunch since late 2021, when China Evergrande Group collapsed and triggered a series of debt defaults.
Contagion fears following the country’s largest private developer Country Garden’s ability to make debt payments have risen, with asset manager Zhongzhi Enterprise Group on Wednesday flagging it was facing a liquidity crisis and would conduct a debt restructuring. “Concerns about misallocation could make the initial policy response hesitant, exacerbating the debt/deflation loop,” Morgan Stanley said.
Data last week showed China’s consumer sector fell into deflation and factory-gate prices extended declines in July, mounting further pressure on Beijing to release more direct policy stimulus.
