Citi revised its 2024 economic growth forecast for China, lowering the expected gross domestic product (GDP) growth rate from 5.0% year-over-year (YoY) to 4.8% YoY. The adjustment comes in response to several factors indicating a slowdown in the country's economic momentum.
The bank cited a significant growth miss in the second quarter of 2024, with real GDP growth falling short of expectations at 4.7% YoY. This underperformance, alongside a continuation of incremental support policies, prompted the revision to account for the observed economic weakness.
Further softening in economic activity was noted in July, with high-frequency data pointing to a deceleration. In particular, property sales in the top 30 cities saw a contraction of 20.0% YoY in the period from July 1-28, compared to a 19.5% YoY decline in June. Industrial activity also faced challenges due to weather events such as floods and typhoons, which disrupted supply chains and kept production ratios low for materials like asphalt and cement.
Citi also highlighted the measured nature of recent policy efforts following the Third Plenum. Despite a new round of policies, they were characterized as reactive and targeted rather than sweeping changes. The bank noted that the pace of rate cuts and fiscal easing did not introduce new stimuli but rather reallocated existing funds, dampening expectations for immediate economic boosts.
The current economic environment has not been conducive to a revival of confidence, with consumption and private investment likely to remain subdued. Citi anticipates that stimulus measures may become more prominent in 2025, in anticipation of potential external demand fluctuations and the upcoming US Presidential election.
The bank forecasts a potential rise in the headline fiscal deficit to around 3.5% of GDP in 2025 and anticipates cuts in the 7-day Reverse Repo rate the following year, suggesting a growing urgency for policy stimulus if external conditions worsen.
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