China Growth Forecasts Raised as Consumer Spending Strengthens
China’s better-than-expected economic data in June and a stronger pickup in consumption prompted several economists to raise their growth forecasts for the rest of the year.
Standard Chartered Plc, JPMorgan Chase & Co and ING Bank NV upgraded their projections, citing surprisingly strong activity last month and the central bank’s shift away from a policy tightening bias.
Data released Thursday showed China’s economy steadied in the second quarter with consumer spending and investment picking up. An industry breakdown of the data on Friday showed restaurants and hotels industries continued to expand at a solid pace of 17.1% last quarter, despite the fading of favorable base effects that skewed the figures in the first quarter.
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There are positive signs the consumer recovery will continue, with Hui Shan, chief China economist at Goldman Sachs Group Inc. pointing to a drop in the household savings rate last quarter. The rise in savings up to the first quarter had held back consumption, but the decline last quarter was “encouraging,” she said in an interview on Bloomberg Television Friday.
Still, the durability of the consumer recovery depends on the broader economy, she said.
“The government’s push in driving up consumption goes way beyond just thinking about consumption coupons or income transfer,” she said. “You need to have solid, good quality jobs to increase income. And that’s where we still need a strong manufacturing sector,” she said.
The GDP data eased fears of a deeper slowdown, which had been partly fueled by the central bank’s unexpected move last week to boost bank liquidity and warnings from top officials about cyclical risks.
“The slowdown angst is overdone,” Standard Chartered economists led by Li Wei wrote in a report. “With gross domestic product growth already close to its potential level, the government has placed greater emphasis on ensuring a more balanced recovery in 2021.”
Here’s a summary of their views:
|Banks||2021E (previously)||3Q21E (previously)||4Q21E (previously)|
|ING Bank||9.4% (8.7%)||Not mentioned||Not mentioned|
|Standard Chartered||8.8% (8%)||6% (5%)||5% (4.8%)|
|JPMorgan||9.1% (8.8%)||7.4% (7%)||5.4% (5%)|
Growth risks remain in the second half of the year though, with authorities likely to keep a tight rein on the property market, local government financing vehicles and big tech companies. An uncertain outlook for global demand may also complicate the recovery.
Wang Tao, chief China economist at UBS Group AG in Hong Kong, downgraded her full-year growth forecast to about 8.5% from 9%, which is still comfortably above the government’s target of more than 6%.
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