Global investment banks Standard Chartered, Goldman Sachs and Nomura have all cut their 2022 economic growth forecasts for China. New coronavirus outbreaks and downward pressure on the real estate market are chief reasons China’s economic recovery is losing steam.

Growth forecasts for China this year have been slashed by global investment banks as the economy struggles to shake off a number of issues, from new coronavirus outbreaks to downward pressure on the housing sector.

Gross domestic product (GDP) growth estimates for the world’s second largest economy range between 2.8 and 3.3 per cent, according to updates published in mid-August.

“The second quarter has been extremely low due to Covid restrictions,” said Alicia Garcia Herrero, chief Asia-Pacific economist with the French investment bank Natixis.

“Quarter three has not started very well, with some reduction in domestic mobility from a peak in June, but also [due to] a worsening environment for housing sales, which are growing highly negatively, and so is fixed asset investment in real estate.”

Standard Chartered have forecast China’s GDP growth at 3.3 per cent, while Goldman Sachs estimated 3 per cent and Nomura forecast just 2.8 per cent, all lower than earlier predictions this year. Natixis has also cut its forecast to 3.5 per cent growth.

The Washington-based International Monetary Fund, whose forecasts are widely regarded as benchmarks, said in July it expects China’s economy to grow by 3.3 per cent this year, down from the 4.4 per cent call it made in April.

In March, Premier Li Keqiang set an economic target of “around 5.5 per cent” growth for the US$18 trillion-plus economy, though he has since admitted China is likely fall short.

Fresh coronavirus outbreaks following strict lockdowns in the financial hubs Shanghai and Shenzhen earlier this year are the key reasons banks have lowered forecasts.

Shanghai reported 22 new infections from August 11-14 and the city government “sealed off several residential compounds”, Standard Chartered said on Monday.

The island province of Hainan also reported its first major round of infections this month.

However, China has shown signs of easing lockdown policies, Nomura said on Thursday. Sealing off cities and neighbourhoods has dented spending in the world’s largest consumer market, which has been a huge draw for global retailers since the 1990s when the economy was growing by double digits.

“China’s post-Omicron rebound has fizzled out and the prospects for near-term growth are poor,” Julian Evans-Pritchard, senior China economist at Capital Economics, said on Thursday. “Virus outbreaks are happening with increasing frequency.”

Investment banks have also pointed to drops in real estate investment and related consumption in July and early August.

“Retail sales of property-related items such as furniture and building materials significantly underperformed other items,” Goldman Sachs economists said on Wednesday. “And real estate services fell sharply, weighing on overall service output.”

Debt, defaults and price drops have addled China’s housing market over the past two years.

Figures for July and August show the country’s industrial production is stagnating, too. 

China’s industrial sector is a key driver of the economy and has been a major investment destination for multinational makers of cars, appliances and hi-tech hardware since the 1980s.

Industrial production grew by 3.8 per cent year-on-year in July compared with expectations of 4.3 per cent.

Other data indicates industrial activity is “likely to remain weak” in August due to deteriorating consumer sentiment and new virus outbreaks, Standard Chartered said on Monday.

Standard Chartered said fixed-asset investment growth slowed to 3.6 per cent from 5.8 per cent year-on-year in June.

China’s worst heatwave in six decades, with temperatures of more than 40 degrees Celsius (104 degrees Fahrenheit) in heavily populated parts of the country this month, has put more pressure on industry.

In Sichuan, one of the harder-hit provinces, a government focus on providing power to households sparked a short-term shutdown of major industries.

Several provinces are limiting electricity use or rationing power, Nomura said.

“An unusually hot and dry summer has been stressing power supply and leading to production cuts in certain provinces and some energy-intensive sectors, although we are unlikely to see a repeat of last year’s power outages and severe production disruptions,” Goldman Sachs said.

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