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China’s GDP Forecast Roulette: Investment Banks’ Frequent Revisions Stirring the Pot

Throughout 2023, a flurry of forecast adjustments on China’s GDP growth has been making the headlines. In a classic example, JPMorgan has switched gears on their predictions a whopping six times since the start of the year.

These international investment banks, including Citi and Morgan Stanley, have spent the year recalibrating their predictions, with their latest estimate coming in at a muted 5% growth for China’s GDP. This downward adjustment puts the average prediction from six studied firms at a close 5.1%, just a smidge over Beijing’s target of “around 5%” disclosed earlier this year.

Citi’s latest projection is their fourth so far this year, while Morgan Stanley has only once modified its initial estimate. Nomura has revised four times, UBS three times, and Goldman Sachs twice. The modifications largely spiked in the positive direction following China’s recovery post the strict COVID-19 measures.

The most recent reductions are largely due to slower-than-expected economic growth, as the Chinese authorities appear reluctant to launch large-scale stimulus. Q2 GDP grew at 6.3%, falling short of Reuters’ analysts’ predicted growth of 7.3%.

However, analysts at Rhodium Group suggest that the Q2 GDP growth shortfall stems from official revisions to China’s quarter-on-quarter growth last year. They argue that this seemingly lackluster figure bolsters Beijing’s narrative of needing to support the economy. They further caution that the GDP data may not wholly represent China’s actual economic performance.

The official statistics bureau has been known to announce GDP figures relatively soon after the period ends, followed by subsequent revisions. Amid controversies over the accuracy of China’s data, the bureau has also penalized local governments for data falsification.

Despite the regular revisions, Goldman Sachs has maintained its growth forecast of 5.4% for China. They argue that the surprises aren’t consistent or substantial enough to warrant major adjustments.

With skepticism over official data, some researchers have sought alternative means to gauge growth. One such organization is the U.S.-based China Beige Book, which regularly surveys Chinese businesses to provide economic insights. The firm’s managing director, Shehzad Qazi, has recently voiced concerns over inflated GDP predictions driven by hype and skewed by China’s GDP prints.

Institutional forecasts such as those from the World Bank and the International Monetary Fund (IMF) also regularly project economic outlooks. The World Bank upgraded its China growth forecast to 5.6% this year, up from the previous 4.3%. Similarly, the IMF lifted its GDP projection for China to 5.2%, from 4.4%, but has recently noted China’s slowing growth.

Despite uncertainty about China’s near-term economic trajectory, analysts are optimistic about the long-term growth in the world’s second-largest economy. Rhodium Group analysts argue for a cyclical rebound in China’s economy by early 2024, even in the absence of substantial policy support in the latter half of 2023.

All in all, keeping tabs on China’s GDP forecasts has become a riveting affair, reminiscent of a high-stakes roulette game. While these revisions seem par for the course given the global economic uncertainty, they underline the need for investors to continually assess and adapt their investment strategies in the face of such changes.