Citigroup Revises China's GDP Outlook Upward, Citing Signs of Economic Recovery

05 Oct, 2023

Citigroup Revises China's GDP Outlook Upward, Citing Signs of Economic Recovery

Citigroup Inc. has revised its growth projection for China to 5 percent for the current year, supported by promising data that aligns with the nation's official government target. In a recent statement, Citigroup's economists noted potential improvements in retail sales and industrial production, suggesting that the contraction in exports could also narrow, following the expansion of official manufacturing surveys for the first time in six months.

According to the bank's economists, "The cyclical bottom is here, with all eyes on whether organic demand will pick up amid gathering policy momentum." This new forecast marks an increase from their previous estimate of 4.7 percent, making Citigroup one of the more optimistic investment banks regarding China's prospects.

The economists acknowledged that their previous GDP forecast had been downgraded due to policy disappointment, but they pointed out that since the end of August, "policy momentum exceeded expectations clearly," partly due to certain property easing measures.

A recent Bloomberg poll of economists also indicated a median growth forecast of 5 percent for the year, in line with the official government target. However, this consensus has been influenced by many firms lowering their economic expectations as the property crisis continues to affect economic activity.

While recent data suggests some stabilization in China's factory activity and economic sectors, the recovery remains fragile. Concerns linger about domestic demand, job market pressures, and ongoing challenges within the real estate market.

The ongoing combined mid-autumn and National Day holiday period, which spans from September 29 to October 6, is a crucial period for economic activity. Analysts are closely monitoring this period for signs of increased consumer confidence.

During the holiday's initial three days, major retailers and restaurants in China reported an 8.3 percent increase in sales compared to the same period in 2022 when various regions faced coronavirus restrictions. Additionally, China's Ministry of Culture and Tourism predicts approximately 900 million domestic tourist trips during this year's holidays, potentially resulting in a 5 percent rise in daily average domestic tourism revenues compared to the same period in 2019.

Economists at HSBC Holdings Plc believe that "the services recovery is likely to be a key driver for sustained recovery momentum.

Some economists anticipate that the government may need to increase support, particularly for the property sector. In September, the value of new home sales by China's top 100 developers fell by 29 percent year-on-year, only slightly improving from the previous month's 34 percent drop. According to Bloomberg Intelligence Analyst Kristy Hung, these figures "might indicate a need to step up policy stimulus after a wave of support measures didn't revive sentiment much.