Down Angle Symbol A symbol in the form of an angle pointing downwards. SHANGHAI, CHINA – FEBRUARY 24: A woman crosses a pedestrian crossing in Shanghai's financial district (Lujiazui) during wet weather on February 24, 2018 in Shanghai, China. Vincent Isore/IP3
- Bank of America raised its forecast for China's GDP growth in 2024 to 5.0% after a strong first quarter.
- China's emergence from its economic crisis could also mean that government support will be lower in the future, BofA said.
- BofA doesn't expect a “full growth recovery” as real estate issues and weak demand still remain a concern.
Bank of America raised its forecast for China's economic growth in 2024 after a surprisingly strong first-quarter performance by the world's second-largest economy.
The bank raised its full-year GDP growth forecast to 5.0% from 4.8% and raised its 2025 forecast to 4.7% from 4.6%. The upward revision comes after China posted 5.3% growth in the first quarter thanks to the country's infrastructure and manufacturing investments, moving the country closer to Beijing's 5% GDP target, BofA analysts led by Helen Qiao wrote on Friday.
On the investment front, BofA said the FAI index – a key indicator of investment spending on fixed assets – confirms that the investment strength observed in the first two months of 2024 is not just another “head trick.”
A 9.9% rise in manufacturing and an 8.8% rise in infrastructure saw year-to-date FAI growth rise to 4.5% year-on-year, despite a 9.5% fall in property investment .
“This is particularly significant as investment tends to lead the economic cycle in China, as this is the only area that tends to benefit first from policy support,” the analysts said.
Still, BofA doesn't expect a “full growth recovery” as China is still in a housing crisis and struggling with consumer demand issues.
“The caveat is that other activity data, including retail sales and industrial production, still point to subdued domestic demand,” the analysts said, adding that March industrial production and retail sales numbers fell short of expectations.
“Bottom-up channel controls and indicators, such as: “Cement production and shipping, for example, also appear to be in contrast to the strong top-down infrastructure growth.”
Given robust first-quarter data, policymakers may be less inclined to step up easing measures, dashing hopes for early policy support, the bank said. The analysts wrote that they expect growth to gradually slow for the rest of 2024 as policy support weakens.
Aside from the possibility that government aid will fade, a deteriorating real estate sector that is undermining buyer confidence and a significant decline in Chinese exports due to geopolitical tensions pose downside risks to China's growth prospects, BofA said.
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