Beijing’s efforts to shore up economic growth are boosting investor sentiment as Goldman Sachs revises its growth projections for China’s economy.
Goldman Sachs Group Inc. has upgraded its forecasts for China’s economic growth in 2024 and 2025, citing fresh policy measures announced by the Chinese government aimed at stimulating growth. The forecast revision follows Beijing’s unveiling of a series of initiatives that include increased public spending and support for investment projects, all designed to revitalize an economy grappling with weak consumer demand, persistent deflationary pressures, and a real estate slump.
According to Goldman Sachs, China’s gross domestic product (GDP) is expected to grow by 4.9% in 2024, up from an earlier forecast of 4.7%. For 2025, the bank raised its forecast to 4.7%, from a prior projection of 4.3%, highlighting the increased optimism following China’s new economic policies. The bank’s economists, including Hui Shan, acknowledged the importance of the latest round of stimulus, signaling a shift in China’s cyclical policy management with a sharper focus on stabilizing economic growth.
China’s economic challenges over the past two years have intensified, prompting policymakers to take action. The stimulus measures unveiled by the government come after months of subdued economic performance, compounded by weak consumer sentiment, high levels of private sector debt, and sluggish exports. China’s economy has also been grappling with deflationary pressures, raising concerns about stagnation in key sectors such as manufacturing and real estate.
During a press briefing over the weekend, China’s Finance Ministry announced its commitment to providing greater fiscal support to the economy, while the National Development and Reform Commission (NDRC) laid out plans to accelerate infrastructure and public investment projects. These actions are seen as a strategic effort to hit the government’s target of around 5% GDP growth for 2023, a goal that had previously appeared out of reach given the economy’s underperformance earlier in the year.
One of the key components of the stimulus plan is the allocation of 2.3 trillion yuan ($325 billion) in local government special bond funds, which will be utilized in the fourth quarter of 2024. This late-stage funding injection suggests a more “back-loaded” public spending schedule, indicating that the government is ramping up efforts to deliver a substantial rebound in economic activity toward the end of the year.
Additionally, the NDRC announced that it would pre-approve 200 billion yuan in investment projects by the end of October. These projects are set to be rolled out in 2024, providing a forward-looking boost to infrastructure investment and construction sectors. Analysts believe this will contribute to shoring up confidence in the near-term growth trajectory of the Chinese economy, a critical concern for both domestic and international investors.
The upgrade of China’s growth forecast by Goldman Sachs reflects the anticipated impact of the newly introduced economic measures. According to the bank’s economists, the additional fiscal spending and infrastructure projects will have a positive effect on GDP growth, translating into a 0.4 percentage point increase in growth for 2024. This uptick is expected to offset some of the more negative factors dragging down the economy, including a projected 1.9 percentage point slowdown due to declining exports and continued weakness in the property market.
China’s property sector, in particular, has been a significant source of concern. For years, real estate was a major driver of economic growth, but in recent times, the sector has faced a dramatic downturn. Major developers like Evergrande have defaulted on loans, causing widespread disruptions. The broader slowdown in property investment and construction has weighed heavily on China’s overall economic performance, which is why government efforts to stimulate demand through infrastructure spending are critical at this juncture.
Despite the forecasted improvement in GDP growth, Goldman Sachs economists cautioned that China still faces deep-rooted structural challenges. The country’s “3D” problems—deteriorating demographics, a prolonged debt deleveraging process, and the global supply chain de-risking—are unlikely to be solved by the latest policy measures. These long-term issues will continue to weigh on China’s growth prospects in the years beyond 2025.
China’s demographic challenges are well-known and growing more acute. With a rapidly aging population and declining birth rates, the country faces a shrinking workforce, which will place greater strain on the economy in the long run. Fewer working-age individuals translate into lower productivity and, by extension, slower economic growth. Although government policies to incentivize childbirth and ease the financial burden on families have been introduced, they have yet to produce significant demographic shifts.
Another pressing issue is China’s multi-year debt deleveraging campaign. The country’s corporate and local government sectors are saddled with high levels of debt, a legacy of years of rapid economic expansion fueled by easy credit. In recent years, Beijing has made efforts to reduce debt levels in the economy, but this has contributed to a slowdown in growth. The government faces the challenge of balancing the need for deleveraging with the goal of maintaining robust economic expansion, a balancing act that will likely continue to shape policy decisions in the coming years.
The third major challenge is the global trend toward supply chain de-risking. As geopolitical tensions between China and the United States have escalated, along with concerns over supply chain resilience following the COVID-19 pandemic, many multinational corporations have sought to reduce their dependence on Chinese manufacturing. This shift toward diversifying supply chains away from China could have long-term implications for the country’s manufacturing sector, traditionally a key driver of economic growth.
While the latest policy measures signal a short-term boost to economic activity, they are not expected to reverse these structural trends. Goldman Sachs, therefore, maintained its more cautious long-term outlook for China, with growth projections for 2026 and beyond remaining unchanged.
China’s economic health is of paramount importance not only to its domestic population but also to the global economy. As the world’s second-largest economy, China plays a pivotal role in global trade, supply chains, and investment flows. Its growth trajectory has significant implications for multinational corporations, commodity markets, and global inflationary trends.
Investors and economists around the world are closely monitoring China’s efforts to shore up its economy. While the latest round of stimulus is expected to stabilize growth in the short term, questions remain about the sustainability of these measures in the face of long-term structural challenges. For instance, the real estate market, which has traditionally accounted for a large share of China’s GDP growth, continues to face headwinds, and many experts believe a broader overhaul of housing policies is necessary to revive the sector.
In the commodities market, China’s increased infrastructure spending could boost demand for raw materials such as steel, copper, and cement, providing support for commodity-exporting countries like Australia and Brazil. At the same time, the country’s slower export growth could have negative repercussions for its trading partners, particularly in East Asia and Europe, where economic interdependence with China is significant.
Moreover, as China continues to grapple with deflationary pressures, global inflation dynamics could be affected. A deflationary environment in China may result in lower prices for goods produced in the country, which could have a dampening effect on inflation rates in other parts of the world. This would be a welcome development for central banks in advanced economies like the U.S. and Europe, which are currently grappling with elevated inflation.
