Investment banks split on GDP projection over disappointing Chinese April economic data

The recent release of weaker-than-expected economic data from China for April has triggered a division among investment banks regarding its implications for the overall growth prospects for the entire year.

Given China's relatively poor economic performance last year, makes for a low base of comparison, suggesting it’s easier for gross domestic product to register solid growth for 2023.  

Industrial output grew 5.6% in April from a year earlier, accelerating from the 3.9% pace seen in March, data released by the National Bureau of Statistics (NBS) showed.

According to economists at Standard Chartered Plc, led by Wei Li, who retained their projection of a 5.8 percent rise in GDP for the year, despite the slower-than-expected growth in industrial output, retail sales, and fixed investment reported in the official data on Tuesday.

However, JPMorgan Chase & Co. and Barclays Plc disagreed and have revised down their forecasts.

JPMorgan economists led by Haibin Zhu wrote in a note to clients, “April data points at a big loss in recovery momentum.” As a result, the bank has lowered their full-year GDP growth estimate to 5.9 percent from the previous forecast of 6.4 percent, which had been among the highest projections by economists.

“5.6 percent growth for this year now out of reach,” Barclays economists led by Jian Chang stated further. They have set a new target of 5.3 percent for the year, and for the current quarter, the bank slashed its calculation to a mere 1percent  gain from the previous three months, at an annualized rate.

Some economists who maintain their 2023 forecasts point to the possibility of Beijing implementing additional stimulus measures to support the economy.

Wang Tao, chief China economist at UBS Group AG wrote, “if growth disappoints in the coming months, China may boost infrastructure investment and roll out some targeted consumption support.” UBS maintains its projection at 5.7 percent.

Similarly, Morgan Stanley's team, including Robin Xing, holds onto their 5.7 percent forecast, expecting additional policy easing and broader consumption gains in the second half to support their estimate.

JPMorgan's team expressed doubt about the likelihood of consumption stimulus, stating that “the probability seems low”. They emphasized the importance of monitoring whether the government can adjust industrial policies to restore confidence among private entrepreneurs and create a more favourable business environment.

Barclays, keeping in mind Beijing's target of around 5 percent growth for this year, does not expect aggressive easing measures to be implemented. They also highlighted concerns about industrial production, retail sales, real estate investment, and youth employment, which all point to weakening demand amid deepening property issues.

Neither of the two more pessimistic banks sees much room for monetary policy adjustments. JPMorgan noted that the People's Bank of China signalled no change in policy rates in its quarterly monetary policy report this week. Barclays, while not ruling out interest rate cuts, believes that the scope for such actions is limited this year.

The release of the disappointing economic data has exerted pressure on Chinese assets, leading to a decline in the offshore yuan, which reached its lowest level against the dollar this year.

(With inputs from Bloomberg)