BofA Lowers GDP Forecast, Citing Need For More Stimulus

MNI London - BofA joins others (including Nomura as noted earlier today) in downgrading their outlook for Chinese growth on the back evidence that momentum has slowed notably after the initial reopening bump in 1Q 2023.

• They now see 5.7% real GDP expansion in 2023 (vs 6.3% previously) and 5.0% in 2024 (vs 5.2%). This keeps them above current consensus (5.5% BBG median for 2023) though until now they had been among the most optimistic on Chinese growth (only one forecaster among 72 analysts had been higher than 6.3%).
• They point to continued weakness in confidence with households preferring to save rather than invest or consume, with the private sector in more broadly exhibiting risk low risk appetite. Businesses are holding back on capex spending despite low funding costs, while sluggish home sales and tighter funding conditions have softened real estate investment. The apparent weakening in sentiment has meant the strong credit growth that BofA had anticipated has not materialised (noting slow M1 growth).
• As such BofA expects policy easing to step up in response, with the reverse repo cut on Jun 12 and MLF cut on Jun 15 leading to a 10bp cut in 1-year LPR on Jun 20.
• While such moves probably only marginally lower funding costs, they "sent a strong signal of the policy shift towards an unmistakeable easing...[while] arguably just a baby step [] it raises hope for more countercyclical policy-easing measures in the coming months" including but not limited to a 25bp cumulative cut to the LPR by year-end plus some measures supportive to the property market and consumer spending.
• On balance these measures will "probably help prevent growth from slowing sharply, but will unlikely offer a strong boost to reverse the growth slippage in the near future. BofA sees "ample room for policy easing at this stage", with the most effective measure to stabilize growth being via the public sector levering up.