S&P Lowers China GDP Outlook, More Stimulus in July

S&P Global has trimmed its forecast for economic growth in China to 5.2% this year, from its earlier estimate of 5.5%.

The move is the first cut by the global credit ratings agency this year and is further evidence of the country’s economic slowdown in the second quarter.

It follows lowered predictions by Goldman Sachs and other major investment banks.

“China’s key downside growth risk is that its recovery loses more steam amid weak confidence among consumers and in the housing market,” S&P said in a statement on Sunday.

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Calls for more policy support

The world’s second-largest economy has slowed in recent months after coming back to life with the lifting of three years of tough zero-Covid policies.

In May, property investment slumped further, industrial output and retail sales growth missed forecasts, and youth unemployment hit a record 20.8%.

Forecasts for China GDP growth this year range between 4.4% and 6.2%.

S&P said likely measures to bolster the economy could include “easing housing purchasing restrictions and mortgage down-payment requirements, expanding credit and infrastructure financing and, perhaps, fiscal support for consumption.”

Ning Jizhe, a senior economic official with the country’s top political advisory body and the former head of China’s statistics bureau, is among policy advisers calling for more supportive measures to be rolled out.

“It is better to introduce measures sooner than later,” he said at a forum in Beijing on Sunday, adding that the impact of the measures “ought not to be small”.

Lending benchmarks cut

Last week, China cut its key lending benchmarks, the first such reductions in 10 months. A week earlier, the People’s Bank of China (PBOC) lowered short- and medium-term policy rates.

Sources involved in policy discussions have said state officials will roll out more stimulus this year.

Last week, three major state-run securities newspapers published front-page articles that cited economists as saying that the PBOC will likely further ease monetary policy.

And on Sunday, state-controlled Global Times painted a grim picture of the economy, reporting that many graduates are visiting temples to pray amid rising anxiety over finding a job.

Markets broadly expect stimulus policies to be unveiled after a regular meeting of the Communist Party’s political bureau in July.

“The government is allowing more calls from state media to prepare public opinion for that (politburo) meeting and raise expectations (for more stimulus),” Nie Wen, a Shanghai-based economist at the investment firm Hwabao Trust, said.

Further highlighting pessimism over the economy, China and Hong Kong stocks slumped on Monday after disappointing domestic tourism figures for last week’s three-day Dragon Boat Festival, while the yuan also weakened against the dollar.