Source: Securities Times

Recently, Goldman Sachs, Morgan Stanley, UBS, etc. all published their economic forecasts for next year, paying particular attention to several key issues in the Chinese economy: can GDP grow by more than 5% without a low base? Will real estate stabilize? With strong fiscal policies, is there still room for the deficit rate?

This is the main focus of foreign investment banks and overseas capital. To some extent, it will also affect the capital allocation considerations of foreign investors in the Chinese market. Overall, next year's forecast is optimistic. Goldman Sachs expects China's GDP growth rate to reach 5.3% in 2023. There will be no low base effect on the economy next year, and the GDP growth rate will be 4.8%.

Xing Ziqiang, China's chief economist at Morgan Stanley, believes that China's real estate market has been overregulated to a certain extent, and that China still has huge policy space. To avoid returning to Japan's old path, the trilogy of “stimulus, restructuring, and reform” is essential.

What is the expected GDP growth rate next year?

Goldman Sachs predicts strong revenue growth next year, and the manufacturing industry may recover further. The Goldman Sachs Research Department's macroeconomic team, headed by chief economist Hazels, predicts that the global GDP growth rate in 2024 will be 2.6%, of which China's GDP growth rate is 4.8%, India's is 6.3%, and the US is 2.1%, which is the main driving force for global economic growth.

Wang Tao, head of Asian economic research at UBS and chief Chinese economist, believes that in 2024, China's economy will stabilize against the backdrop of declining real estate. It is expected that starting early next year, the quarterly annualized month-on-month growth rate will rebound from the fourth quarter of this year. Since there is no low base effect next year, the GDP growth rate is expected to be around 4.5%, lower than this year's growth rate of more than 5%.

Xing Ziqiang, China's chief economist at Morgan Stanley, said that this year's GDP growth rate of 5% or more is based on last year's lower base. If the two-year compound growth rate is only 4%, which is slightly lower than before the pandemic, this is also a difference from market expectations at the beginning of the year. Whether the expected growth rate will reach 5% next year depends on the strength of fiscal policy, monetary policy, and other policies. China's economy has plenty of potential growth momentum, and there is also huge policy space.

Real estate is expected to stabilize

The real estate market is in a downward cycle, and economic growth is being dragged down. Can it stabilize next year?

Xing Ziqiang believes that the current real estate market is overregulated to a certain extent. Judging from the ratio of real estate investment to GDP, after just three years of this round of real estate deleveraging, China's real estate investment as a share of GDP shrank from 11% to 6%, lower than the international average, and even lower than Japan (about 7%), while it took Japan 20 years to reduce it to this level, and China's adjustment was relatively rapid.

“This is overstated to some extent, and requires the government to introduce policies to stabilize overall housing demand.” Xing Ziqiang said that the new energy, semiconductor, and green economy sectors are booming. Currently, they only account for 15% of fixed asset investment, and real estate and infrastructure investment still account for 50% of fixed asset investment. Currently, in the current situation of switching between old and new momentum, he suggests continuing to expand the deficit ratio and the size of special debt, and ensure that interest rates are lower than the GDP growth rate.

Wang Tao, on the other hand, believes that the impetus for a moderate economic recovery next year, including a steady growth policy and continued recovery in consumption, may offset the negative impact of the downturn in real estate, while exports will improve slightly next year.

“The most important factor in predicting next year is real estate,” Wang Tao said. The benchmark forecast for next year's economic growth of around 4.5% is based on the support of real estate policies. It is expected that the decline in real estate investment and operating rates will narrow, mortgage interest rates will be lowered, the government will provide more financial guarantees for real estate financing and insured buildings, and substantial progress has been made in urban village renovation and guaranteed housing construction.

The new construction area is expected to drop by 10% for the whole of next year, by about 25% this year, and by about 40% last year. Sales area and real estate investment are expected to drop by another 5% next year, and the decline will all be smaller than this year. As a result, the downturn in real estate will also reduce the extent to which GDP growth is being dragged down.

There is still room for the deficit rate

Currently, the excess savings rate of Chinese residents is still very high. Wang Tao mentioned that the release of excess savings will contribute about 1 percent to next year's consumption growth. The government issued 1 trillion yuan of treasury bonds this year, reflecting a change in thinking about fiscal policy. It is estimated that next year the government's budget deficit rate will be 3.5%-3.8%, and the addition of local government special bonds is estimated at 4 trillion yuan.

Xing Ziqiang suggested that the central government's fiscal deficit should continue to expand next year (on the basis of 3.8%), and that local special debt should also continue to expand. The broad deficit should increase by about 1.5-2 percentage points compared to this year's GDP. The government can invest in basic public services such as health care, education, and social security through transfer payments, thereby reducing residents' preventive savings and increasing their willingness to spend.

According to the framework estimate established by Morgan Stanley, China's progress in the “stimulus, restructuring, and reform” trilogy described above is about 20% or 25%. The loose fiscal policy has only just begun, and its intensity needs to be improved. Overall, the potential growth momentum of the Chinese economy is much better than that of Japan back then, and the level of the housing bubble is not as high as that of Japan in the late 80s, and there is still huge policy space.

There is still a lot of room in the Chinese market

There has been a decline in foreign investment this year, but structural and cyclical factors are not ruled out, including industrial transfer, rising labor costs, and capital flows back due to rising US dollar interest rates. Wang Tao believes that there is a lot of room in the Chinese market. Although economic growth faces long-term challenges, real estate will no longer be used as an economic engine, and the driving force of economic growth will change.

“China has yet to achieve full employment, and there is still surplus labor that needs to be transferred.” She said that despite facing an aging population, the actual average retirement age is not high. If a three-year retirement extension is implemented before 2030, the labor force can also be increased.

“China will grow at an average annual rate of more than 4% this decade.” Wang Tao believes that the long-term challenges are still huge, but there is still a lot of room for the Chinese market. Even if growth is about 4.5% next year and 4.5%-5% growth the following year, as predicted, China's economic growth will average more than 4% per year in the past ten years. China is still the economy that has contributed the most to global economic growth, and is also the second largest economy and second largest market in the world, which is still very attractive to investors and enterprises around the world.

Editor/Corrine