Citi believes China’s economy has bottomed out and has boosted forecast

investmentnews.com:

Citigroup Inc. raised its growth forecast for China to 5% this year, as promising data helps build consensus around the nation’s ability to achieve its official government target.

Retail sales and industrial production may improve, the economists wrote Wednesday, adding that the nation’s export contraction could also narrow after official manufacturing surveys expanded for the first time in six months.

“The cyclical bottom is here, with all eyes on whether organic demand will pick up amid gathering policy momentum,” wrote economists led by Yu Xiangrong. The bank’s previous forecast was 4.7%, making it among the more bearish investment banks on China. 

“Previously, we had downgraded our GDP forecast out of policy disappointment,” the economists said, adding that since the end of August “policy momentum exceeded expectations clearly” due to some property easing measures.

The most recent poll of economists by Bloomberg showed a median forecast for growth of 5% for the year — in line with the official goal. That is, however, in part because many firms have been downgrading their expectations for the economy as the property crisis drags on activity.

While recent data has indicated some sectors of China’s economy, such as factory activity, is stabilizing, the recovery remains precarious. Economists have pointed to concerns about domestic demand and job market pressures, along with ongoing troubles within the real estate market. 

This week is a critical period for activity: Analysts are watching closely the combined mid-autumn and National Day holiday period — which began Sept. 29 and runs through Oct. 6 — for signs of increased consumer confidence.

Sales at China’s major retailers and restaurants rose 8.3% in the first three