JPMorgan, Citi raise full-year forecasts for China’s economy

Analysts at JPMorgan and Citi raised their full-year forecasts for China’s economy after it delivered an impressive first-quarter gross domestic product growth of 4.5% on Tuesday.

JPMorgan raised its 2023 growth outlook to 6.4%, up from a previous forecast of 6%, saying the latest quarterly report points to further growth ahead.

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“The strong 1Q GDP report points to a strong post-reopening recovery,” JPMorgan’s chief China economist Haibin Zhu said in a Tuesday note.

“A range of factors have led the strong rebound in 1Q activity, including a notable rebound in travel-related consumption and services,” Zhu wrote.

“The stronger-than-expected 1Q GDP reading lifts our full-year GDP growth forecast,” he said, adding that China’s recovery “will likely continue in the near term” before its growth momentum starts softening in the second half of the year.

Citi also raised its forecast to an above-consensus view of 6.1% from its previous forecast of 5.7%, saying the Chinese economy is “well on track on its post-Covid recovery led by consumption and services.”

The firm added that the stronger-than-expected first-quarter growth suggests further growth ahead.

“Given meaningful recovery perhaps only started after the Chinese New Year, the underlying momentum could be stronger than the headline number suggests,” Citi economists led by Xiangrong Yu said in a Tuesday note.

Citi economists noted that while services outperformed in the consumption-driven growth for the first quarter, they remain cautious on their forecasts.

“The release of pent-up demand during Covid and holiday helped, but we remain cautious on its outlook without big stimulus in sight and the discounts intensifying,” Citi economists wrote.

UBS also raised its forecast for the year from 5.4% to 5.7%, “given the stronger-than-expected recovery in Q1 2023, driven by both a robust rebound in consumption and property.”

Citi said in its Tuesday note that the upcoming Politburo meeting could be a chance for policymakers to boost additional confidence in the private sector.

“We don’t think the policymakers will lay back comfortably, as various structural issues are calling for additional efforts,” Citi economists wrote, adding that the latest economic data decreases the need for further stimulus.

“With the Q1 GDP data, the top leadership could meet in the April Politburo meeting to discuss economic related issues. We were having low expectations on stimulus this year, and if anything, the Q1 data would perhaps lower stimulus expectations further,” they said.

Citi added that investors should keep an eye out for policies related to structural reform ahead.

“This year could also be a window of opportunity for the government to come up with a holistic and institutional solution to local government debt. With economy stabilization playing out, structural reform could be the next theme to watch,” Citi economists wrote.

HSBC also said in a note that maintaining the recovery momentum will be a task for China’s policymakers.

“The recovery remains uneven, property investment has yet to fully stabilize, while private investment growth dropped into contractionary territory,” HSBC economists led by Erin Xin wrote.

“Thus, Beijing will need to stay on its toes and provide ongoing policy support to sustain the recovery momentum,” HSBC said.

Morgan Stanley hinted in its Tuesday note it could make similar moves ahead, saying the firm sees upside risk to its full-year forecast of 5.7% growth.

“Risks facing our full-year GDP forecast of 5.7%Y is now skewed to the upside given a strong entry,” Morgan Stanley economists led by Zhipeng Cai wrote.

They added that an average of 4.8% quarterly growth in the remaining period of the year “could be overachieved” due to low inflation levels in China.

China’s consumer inflation hit an 18-month low earlier this month.

“Sequential growth may soften in 2Q as growth YTD was partly supported by pent-up demand and catch-up in labor-intensive exporters,” Morgan Stanley economists wrote.

BNP Paribas also said its full-year forecast of 5.6% “now looks tilted to the upside” following the GDP report for the first quarter.

“The ongoing recovery is two-speed, with services outperforming goods and consumption outstripping investment and exports,” BNP Paribas economists Jacqueline Rong and Shan He wrote.

“Property sales have more room to recover, but we think investment will continue to lag as developers transition to low-leverage and low-turnover business models,” they said.