J.P. Morgan Views Post Yesterday's Data

The US bank has revised higher its growth projections for this year, but cautions on the outlook into 2024, with little evidence that the weak points in the economy have been fixed. More policy support is likely, see below.

• "Today’s economic data is overall encouraging. For the first time since April, China’s economic growth returned to above-trend path and the momentum continued into the current quarter. Policy tailwind sectors (e.g. green sectors, manufacturing and infra-activity) remain strong; export volume has returned to positive growth along with the bottom-up of the tech-cycle and diversification of China’s exports; the recovery in retail sales is particularly encouraging, supported by deployment of excess saving. Therefore, we revise up our 4Q GDP growth forecast to 5.5%q/q saar (previously 4.9%q/q saar), or 5.1%oya. Our full-year 2023 growth forecast is now 5.2% (previously: 5.0%), above this year’s official growth target.
  
  Nonetheless, from the cautious side, there is no clear evidence that the weak links in the economy have been fixed. Other than the recovery in retail sales, private investment remains weak and the housing market correction continues. The housing policy relaxation since August, mainly focusing on the demand side, seems to only have had a modest impact on housing transactions: in yoy terms, the decline narrowed modestly in September but it was far from stabilizing. In addition, deflation pressure continues. Weak nominal GDP growth (3.5%oya in 3Q) suggests that the earnings and profit outlook remains a hurdle in the path to the recovery in private investment.
  
  Another challenge is the growth outlook in the coming years. We estimate that China’s potential growth is coming down faster than initially expected, to a range of 4-4.5% in 2024 and 3.5-4% in 2025 (and stabilizing thereafter). This is associated with several changes in recent years, including changes in US-China relationship ( e.g. technology decoupling), accelerated pace of global supply chain relocation after the Ukraine war, and confidence erosion among non-SOE sectors amid an unstable and unpredictable policy environment. Our growth forecast for 2024 is now 4.7%. To achieve this, it will need support from policy adjustment."