Wall Street was busy lowering their expectations for Chinese growth on Monday after official data showed the world’s number-two economy growing at a slower-than-expected rate.
China reported that its economy grew 6.3% year-over-year in the second quarter, missing expectations for 7.1% growth.
JPMorgan cut its expectations for China’s growth to 5%, from 5.5% previously. Its economists noted the risk of a double dip in the housing market, that the GDP deflator was negative, and that youth unemployment continued to record new highs.
“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. 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 said.
Citi also lowered expectations to 5% growth for the full year — even while expecting “more realistic policy support” over the coming months.
“Without policy support, [the 5% growth target] could be challenging as the initial reopening impulse fades. At the sector level, we are concerned on the risk that external headwinds could resonate with property woes. Global goods demand weakness could increasingly weigh on exports despite the favorable base effect ahead. Property issues seem to be worsening as we head into the summer. In addition, the retail weakness and quasi-deflation situation both point to a deep and entrenched lack of household confidence.”
Morgan Stanley also settled on 5% growth, from 5.7% previously. “As 2Q GDP has decelerated on sluggish property and infrastructure investment and policy reaction remains slow, investors are concerned whether a regime shift in government goalposts is underway, marked by prioritization on stability, and higher tolerance over a slower growth trajectory. The implication from this shift would mean a lack of meaningful stimulus to lift growth from cyclical lows,” its team said.
The firm did say it disagrees with that view. “We believe Beijing still retains the goal of achieving a moderately prosperous society by 2035 (US $ 20,000 in per capita income by then vs. US$ 12,800 currently), which means the need to sustain GDP growth at a decent level over the next decade. Given the secular challenges from demographics, debt, and de-risking, reviving private sector animal spirits holds the key to sustain productivity and thus potential GDP growth.”
Economists at ABN Amro said they were reviewing their numbers. “Going forward, we expect further piecemeal monetary easing steps in the coming months, such as further mini cuts in policy rates and the reserve requirements ratio for banks, as well as targeted (fiscal) support and relaxation of macroprudential regulation to stabilise the property sector and support domestic demand. Beijing also made clear it wants to restore confidence amongst consumers, firms and investors, and against that background recently confirmed the end of its regulatory crackdown launched a few years ago,” they said.
The Shanghai Composite SHCOMP, -0.87% fell 0.9%, while the Hang Seng HSI, +0.33% was closed due to a typhoon warning.
The KraneShares CSI China Internet ETF KWEB, -2.99% fell 1% in premarket trade.
Copper futures HG00, -2.68% slumped by 3%.