Beijing announced its annual economic growth target during the «Two Sessions» gathering of the National People’s Congress. Private banks are divided on the likelihood of achieving this goal.
On Tuesday, Chinese Premier Li Qiang announced that the world’s second-largest economy would aim to grow its GDP by «around 5 percent» in 2024, matching the same target for 2023. There was also a surprise announcement that Li would not hold a post-parliament press conference this year and the remainder of the National People’s Congress’ remaining term, which will be completed in 2027.
This marks the end of a 30-year tradition that offers a rare glimpse into the thinking of China’s second-in-command, who is usually in charge of the economy. In the absence of such additional insights, it will be all the more challenging to assess the country’s economic outlook. So, what say the banks?
UBP: Missed Target
According to UBP’s Asia senior economist Carlos Casanova, the 5 percent target will be more difficult to achieve this year compared to 2023, which saw 5.2 percent growth on the back of a favorable base effect from the Shanghai lockdown. When stripping that base effect, the bank’s model estimates that 2023 grew by just 4.1 percent.
«Going from 4.1 percent to 5.0 percent will require additional policy support, something which was not apparent from Li Qiang’s speech – although he did mention that 5 percent will be 'more challenging’,» said Casanova in an investment note. «We kept our GDP growth forecast for 2024 unchanged at 4.5 percent, entailing a miss.»
Bank of Singapore: Upcoming Stimulus
In contrast, Bank of Singapore is more optimistic about achieving the target. It echoes the challenges of growing 5 percent without the post-pandemic base effect but forecasts that there will be positive policy drivers in the future.
«For growth to stay around 5 percent again in 2024, further fiscal and monetary stimulus will be needed as last year’s reopening tailwinds will be absent this year,» said chief economist Mansoor Mohi-uddin in a note. «We think officials will take fresh action to support activity and thus maintain our 2024 GDP growth forecast of 5.0 percent.»
UBS: Does It Matter?
Although the NPC target is also in line with UBS’s forecast, it questioned if investors should care about this goal at all. According to the bank's global wealth management chief economist Paul Donovan, China’s growth matters more to global firms than the global economy, as it is not very dependent on imports for consumption, and he highlights the means of achieving the growth target as more important.
«China’s consumption share of GDP is well below that of comparable economies like Indonesia and if growth is generated without that consumption share rising, the importance of China’s growth target to companies and economies diminishes,» he said in an audio note. «The quality of growth is perhaps more relevant than the headline political target.»
