Goldman Sachs cuts its China GDP forecast to 4% on Covid controls

cnbc.com:

BEIJING — Goldman Sachs analysts on Wednesday cut their forecast for China's GDP to 4% after data for April showed a slump in growth as Covid-19 controls restricted business activity.

The new forecast is even further below the «around 5.5%» growth target the Chinese government announced for the year in March.

«Given the Q2 Covid-related damage to the economy, we now expect China's growth to be 4% this year (vs. 4.5% previously),» Hui Shan and a team at Goldman wrote in a report Wednesday. That prediction assumes there will be significant government support, on top of measures to stabilize the property market and control Covid outbreaks.

Since March, mainland China has struggled to contain its worst Covid outbreak in two years. Notably, the metropolis of Shanghai only started this week to begin discussing the resumption of normal activity — with a goal of mid-June.

Among April's weak data, the Goldman analysts pointed to a plunge in housing starts and sales, half the credit growth that markets expected and a drop below 1% for the increase in consumer prices, excluding food and energy.

Other data for April released Monday showed an unexpected drop in industrial production and a worse-than-expected 11.1% decline in retail sales from a year ago. Exports, a major driver of growth, rose by 3.9% in April from a year earlier, the slowest pace since a 0.18% increase in June 2020, according to official data accessed through Wind Information.

«The weak data highlight the tension between China's growth target and zero-Covid policy which is at the core of China's growth outlook,» the Goldman analysts said.

They noted how Chinese leaders have emphasized their «dynamic zero-Covid» policy, and how news that China will not host the Asian