China’s 5% economic growth target for 2023 is in jeopardy due to real estate crisis

China is on track to achieve its economic growth target of around 5% this year, according to the latest Bloomberg survey, but the ongoing real estate crisis is raising the risk that it will not be able to do so.

The economy is expected to expand 5% in 2023, according to the median estimate in the latest Bloomberg survey of 78 economists, and analysts say real estate is the nation’s biggest challenge. This is a 10 basis point reduction from the previous survey.

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Analysts at Hong Kong-based investment firm Poseidon Partners said that despite recent government efforts to support real estate, “the real estate sector will continue to come under increasing pressure.” suffer. “

The Economist’s research is consistent with a new study from Bloomberg Economics that suggests a growth target of “about 5%” is still possible, although not certain. They estimate the probability of undershoot to be 18%.

“The effects of weak real estate, weak sentiment and widespread debt stress in the corporate sector could well push the economy into a downward trajectory,” economists Zhang Xu and Andrei Sokol wrote in a note on Tuesday. ”, predicting gross domestic product (GDP) to expand by 5.4%. this year.

HSBC Holdings, Morgan Stanley and Citigroup already expect growth to be less than 5% this year, with HSBC lowering its forecast this week to 4.9% from 5.3%.

August data suggests some of the drag on the economy may be bottoming out, as the drop in exports eases and an official survey of manufacturing activity moves closer to a line indicating expansion. . Credit also grew faster than expected, which could suggest that household demand for mortgages is stabilizing to some extent as authorities work to revitalize the real estate market.

The unexpected turnaround in these numbers means that the probability that China will miss its official growth target fell from 32% in July to less than one in five in August, according to Bloomberg Economics. However, uncertainties still exist, particularly regarding the housing market. Home price growth in the nation’s largest cities is already losing momentum, according to home sales data.

“Targeted support measures are not yet convincingly reflected in property market data,” said Arjen van Dijkhuizen, senior economist at ABN AMRO.

Another study says the real estate crisis is by far China’s biggest challenge. Of the 21 economists surveyed by Bloomberg, 17 ranked real estate as their top priority. Three cited the economic slowdown, while the remaining respondents pointed to a crisis of confidence in the country.

When asked about the continued slump in home sales, 15 of the 21 economists in the survey said they believed the decline in home purchases would continue until at least the beginning of next year.

Former central bank adviser Li Daokui says the real estate market recovery could take as long as a year and urges the Chinese government to do more to facilitate lending to developers to prevent further defaults. I asked. While sales could return to growth faster in large cities, smaller cities could take up to a year to record a “good recovery,” Lee recently told Bloomberg News.

HSBC economists led by Jing Liu wrote in a research note this week about the reason for the downgrade: “The real estate impact has yet to fully subside, and external weakness will continue for some time.”

He added, “To prevent structural imbalances from worsening, policymakers are refraining from a ‘sugar rush’ of policy support.”However, fiscal and monetary support measures continue to be implemented. “However, it will take time to have a larger impact.” ”

Other findings from the Bloomberg survey:

• China’s GDP is expected to grow 4.3% year-on-year in the third quarter of 2023 and 4.8% year-on-year in the fourth quarter, both slightly lower than the previous survey.
• Growth forecast for 2024 remains unchanged, expanding by 4.5% year-on-year
• Economists still expect China’s one-year and five-year loan prime rates to be cut by 10 basis points this year.
• It left unchanged its forecast that the central bank’s one-year medium-term lending rate would be cut by 10 basis points by the end of the year.
• Producer prices are expected to fall by 2.9% for the full year, a slight improvement from the previous survey’s forecast of a 3% decline.
• Exports are likely to decline by 4.2% in 2023, compared to an estimated 3% decline in the previous survey.
  • This year’s imports will decrease by 5.6%, unchanged from the previous forecast