BofA joins peers in downgrading China growth

A vast majority of global banks now expect China’s economy to grow less than 5% this year, with Bank of America Corp. the latest to slash its forecast, joining the likes of Goldman Sachs Group Inc. and JPMorgan Chase & Co.

The world’s second-biggest economy may expand by 4.8% this year, down from a previous forecast of 5%, according to a BofA report received Wednesday. Growth may slow further to 4.5% in the next two years, compared with an earlier estimate of 4.7%, the bank said. 

The downgrade reflects a growing consensus among the world’s biggest banks that China may struggle to achieve its growth target of around 5% this year. There are calls for Beijing to introduce more stimulus after the economy expanded at its weakest pace in five quarters, but policies have remained incremental and the central bank said it will avoid “drastic” measures.

“We find both the fiscal and monetary policy stance less accommodative than desired and insufficient to revive domestic demand growth,” BofA economists including Helen Qiao wrote in the note dated Sept. 2.

The bank noted that its latest forecast is at the lower end of the official target and highlighted the US presidential election as a major uncertainty for China’s growth, given that exports are now the economy’s “almost only bright spot.”

Official data showed that a broad measure of government spending shrank in the first seven months of the year, while credit demand remained weak despite lower lending rates.

The services sector, which had been relatively resilient, is also losing momentum. A private survey on Wednesday showed services activity grew less than anticipated in August due to increased competition and price cuts by companies to maintain market share.

BofA said while the pace of sequential growth may have reached its lowest point in the second quarter as existing measures gradually kick in, China’s expansion is likely to stabilize at below-potential levels for the next two years due to inadequate policy support.