Goldman Sachs upgraded its growth forecast for China over the weekend, citing recent stimulus measures and new comments from government officials showing willingness to spend more aggressively to revive the economy.
The bank raised its full-year China GDP forecast to 4.9% from 4.7% and also raised its 2025 growth forecast to 4.7% from 4.3%. Beijing has previously said it is aiming for an annual growth target of “about 5%.”
“The latest round of Chinese stimulus measures clearly indicate that policymakers have reversed cyclical policy management and increased their focus on the economy,” Hui Shan, Goldman Sachs’ chief China economist, said in a note to clients published Sunday.
On Saturday, China’s Finance Ministry hinted at another major stimulus package to support the country’s ailing real estate sector and proposed more government borrowing, although the ministry stopped short of disclosing the exact size of the spending.
“The central government has relatively large room for debt expansion and deficit increases,” Finance Minister Lan Fo’an said at the much-anticipated briefing, describing the upcoming debt repayment plan as “the largest in recent years.”
Although vague, the comments left the door open for a more aggressive fiscal package, which investors are increasingly betting on as Beijing tries to pull itself out of a prolonged slump fueled by deflationary pressures from a sluggish real estate market and weak domestic demand.
Optimism that the government will follow boosted Chinese stocks on Monday with the Shanghai Composite (000888.SS), a key indicator of the overall performance of the Chinese stock market, rising more than 2%.
Similarly, China’s benchmark CSI 300 (000300.SS) ended the day up just under 2%, recovering from last week’s lows. The index has risen 25% in the past month after China unleashed its most aggressive monetary stimulus since the pandemic.
The stimulus, first announced on September 24, includes efforts such as interest rate cuts, lower reserve requirements for banks, liquidity for the stock market and mortgage relief.
But the euphoria that initially fueled the rally in Chinese stocks is starting to fade as economists await an additional package. worth about 2 trillion yuan ($284 billion).
During Saturday’s briefing, Lan said “other policy instruments that are still in the pipeline are being discussed.”
He also noted that more measures would be taken to speed up the introduction of the current proposals after China’s top economic planner, the National Development and Reform Commission, announced this. would spend 200 billion yuan ($28 billion). to local governments for expenditure and investment projects by the end of the year.
Still, economists say China’s full recovery depends on the scale and implementation of more fiscal policy than just monetary support.
“The ‘3D’ challenges – worsening demographics, a multi-year deleveraging trend and global supply chain derisking – are unlikely to be reversed by the latest round of policy easing,” Goldman Sachs warned in its note.
“It remains to be seen exactly how much additional easing will be announced in the coming weeks and months, and how well this stimulus policy will ultimately be implemented,” the bank added.
Alexandra Canal is a senior reporter at Yahoo Finance. Follow her on X @allie_canal, LinkedIn, and email her at alexandra.canal@yahoofinance.com.
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