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Goldman, Nomura cut China GDP forecasts as outlook darkens

BEIJING (BLOOMBERG) – Goldman Sachs Group and Nomura Holdings have downgraded their forecasts for China’s economic growth further, with a power supply crunch adding more uncertainty to the outlook. 

Goldman Sachs lowered its projection for gross domestic product growth to 3 per cent from 3.3 per cent, citing weaker-than-expected July economic data as well as near-term energy constraints. Nomura slashed its forecast to 2.8 per cent from 3.3 per cent.

China’s slowdown deepened in July as a worsening property slump and Covid-19 lockdowns continued to curb business and consumer activity. The central bank unexpectedly cut interest rates this week to help bolster growth, while local governments are set to sell more bonds to ramp up spending.

Economists have turned more downbeat about the growth outlook this year, predicting for months already that the government will miss its ambitious GDP growth target of around 5.5 per cent. The consensus in a Bloomberg survey of economists is 3.8 per cent. Top officials have been downplaying the target recently, and have privately acknowledged that China is unlikely to meet it this year.

July data, along with muted inflation and sluggish credit growth, “confirmed the lack of domestic demand”, Goldman economists wrote in a report to clients on Wednesday (Aug 17), adding that Covid-19 cases are rising, power supply is stressed due to the hot summer, and major new stimulus is unlikely. 

Nomura economists said the Covid-19 situation has worsened recently, and August activity data could be even worse than July due to the rising number of lockdowns. The current heatwave could also hit growth, they said. 

“Beijing will likely do more to arrest the slowdown, but rolling out a comprehensive stimulus package is of low probability in a year of government reshuffle, while the need for maintaining zero Covid-19 makes conventional stimulus measures much less effective,” Nomura economists wrote in a note on Thursday. 

Several other economists have also cut their forecasts for China this week. Analysts at ING Group and TD Securities downgraded their full-year GDP projections to 4 per cent and 2.9 per cent respectively.

Goldman Sachs said the change in its forecast implies that GDP for the third quarter will probably grow 3.5 per cent from a year ago, lower than an earlier projection of 4.3 per cent, while fourth-quarter growth will ease to 3.3 per cent from 3.8 per cent previously. 

A heat wave in Sichuan is curbing hydropower generation in a growing threat to electricity supply and economic growth in one of China’s most-populous provinces. Some factories in the manufacturing hub in south-western China are curbing production. 

In Hubei province, next to Sichuan, outflows from the Three Gorges Dam, the world’s largest hydroelectric power station, are down about 40 per cent from last year, according to, an industry news service.

However, China is unlikely to see nationwide power outages due to the drought, said BloombergNEF analyst Wei Hanyang.

Most provinces are more dependent on coal for electricity generation, and plants stocked up on the fossil fuel before summer in line with government directives, he added.