People walk along the Huguosi street, Xicheng district, a dedicated food street in Beijing on August 23, 2024. (Photo by ADEK BERRY / AFP)
Beijing: China economists are increasingly pessimistic about the prospects of domestic demand in the country as they lower 2024 forecasts on inflation, investment and consumption despite expected rate cuts.
Retail sales, a key gauge of consumer spending, are now forecast to rise just 4% this year, down from a previous projection of 4.5%, as expectations for growth in the two remaining quarters are slashed, according to the median estimate of economists surveyed by Bloomberg this month.
That would be the slowest increase barring pandemic years since government data became available in 1999.
The prediction of annual growth in fixed-asset investment, which includes investment in infrastructure and manufacturing, fell to 4.2% from 4.4% in last month’s poll.
Economists also trimmed their inflation forecasts in the face of more bearish views on consumption and investment, projecting consumer prices to rise 0.5% this year – down from an earlier estimate of 0.6% – and postponing an expected turnaround in industrial deflation by a quarter to early next year.
The downgrades come even though Chinese policy makers are seen to be cutting rates earlier than previously thought.
That underscores the challenges Beijing faces in stimulating the economy to achieve its growth target of around 5% this year.
The People’s Bank of China (PBoC) lowered a key policy rate last month, after official data showed economic growth slowed to the worst pace in five quarters in the April-June period.
Still, credit demand has remained sluggish as a persisting property slump, fierce price competition and a gloomy job market hold businesses and consumers back from spending.
“Recent monthly indicators point to weak growth momentum,” said Arjen van Dijkhuizen, senior economist at ABN Amro Bank NV. “We see further room for piecemeal monetary easing, with inflation still very subdued, and targeted fiscal support to break the negative feedback loop in real estate.”
The central bank may trim the seven-day reverse repurchase rate by 10 basis points during the October-December period to 1.6%, and follow up with another reduction of the same magnitude in the second quarter of 2025, economists in the Bloomberg survey predict.
They had previously forecast a 10-basis-point cut only in the first quarter next year before the rate is lowered again during the April-June period in 2026.
The rising likelihood of the US Federal Reserve lowering interest rates is fanning expectations China’s monetary authorities will have more leeway to loosen policies. — Bloomberg
