In a noteworthy development for the global economy, Goldman Sachs has revised its forecast for China's GDP growth for 2024 from 4.7% to 4.9%. This upward adjustment reflects the investment bank's increased confidence in the prospects for China's economic expansion, largely attributed to recent stimulus measures introduced by the Chinese government aimed at bolstering growth.

The influence of these stimulus plans cannot be understated. They are showing tangible benefits, particularly within the manufacturing sector, which has demonstrated remarkable resilience and strength. According to a report from the chief economist at Goldman Sachs for China, the surging performance of the manufacturing industry has led to an upgraded forecast for GDP growth in both the first quarter and throughout the year. Notably, China's official manufacturing PMI made significant gains in March, with approximately two-thirds of the improvement tied to seasonal adjustments, while the remaining one-third indicates a genuine upturn in manufacturing momentum. Other indicators similarly highlight a robust manufacturing performance, leading Goldman Sachs' macroeconomic team to revise its projections for actual GDP growth.

Furthermore, the tourism sector is experiencing a vigorous rebound. During the recent Qingming Festival, spending on travel even surpassed pre-pandemic levels. Goldman Sachs' economists emphasized this trend will continue to fuel economic recovery. Additionally, internal indications show that inventory levels rose in the first quarter of this year, providing further evidence of a recovering economy.

A contrasting view arises when looking at a Bloomberg survey conducted last month, where economists predicted an average of 4.6% growth for the entirety of the year. Goldman Sachs, with a more optimistic outlook, believes this revision stems primarily from better than expected growth in manufacturing alongside encouraging signs in other economic sectors. As policy measures take effect and the environment—both domestic and international—improves, the prospects for sustained and steady growth in the Chinese economy appear bright.

Advertisement

To stimulate economic momentum, the Chinese government has rolled out an array of initiatives aimed at boosting domestic demand. Drawing a parallel to strategies deployed during the 2008 financial crisis, the National Development and Reform Commission has reiterated its commitment to enhancing consumption through various methods. These strategies include elevating living standards for low-income groups, increasing farmer incomes, striving for job creation, and improving social security measures such as pension and health insurance. It also features encouraging efforts to further develop rural markets.

In response to adverse external economic conditions and to avoid a sharp decline in growth, China is pursuing a proactive fiscal policy combined with moderately relaxed monetary measures. The latest plan outlines a central investment of 100 billion yuan to be allocated in the final quarter of the year, which is expected to stimulate a total investment of 4 trillion without leading to low-level redundant construction. These investments encompass various sectors, particularly in affordable housing, rural infrastructure, as well as improvements to medical and educational services.

Data from the National Bureau of Statistics indicates that the Chinese economy has been on an upward trajectory since bottoming out at the end of 2023. In January, the Purchasing Managers' Index (PMI) for manufacturing, alongside the PMI for non-manufacturing activities and a comprehensive PMI output index, registered at 49.2%, 50.7%, and 50.9% respectively, indicating a slight recovery from previous months. By March, the manufacturing PMI notably entered expansive territory, surging to 50.8%, highlighting a resurgence in growth momentum.

The recovery is further illustrated when examined across key industries. For example, new orders across the equipment manufacturing, high-tech manufacturing, and consumer goods sectors showed indices all above the critical 50% mark. Meanwhile, high-energy-consuming industries lagged behind with new order indices at 47%, indicating a continued lack of demand. Throughout March, indices for production and new orders soared to 52.2% and 53.0%, marking significant improvements in market supply and demand dynamics.

Accompanying the acceleration in manufacturing output, Goldman Sachs identified substantial inventory increases during the first quarter, aligning with data from the China Iron and Steel Association which documented year-on-year increases in enterprise inventories, reaching historically high levels for the first quarter. By mid-March, stockpiles of steel among key surveyed enterprises hit 19.53 million tons, the highest seen since the beginning of the year and only surpassed by figures observed during the pandemic in 2020.

Looking forward, Goldman Sachs anticipates a 16% increase in its index for next year, projecting foreign investment flows to reach around $100 billion. The agency suggests a continued overweight positioning for the A-share market, as current valuations are perceived to be undervalued relative to historical norms. With corporate profits expected to improve alongside broad macroeconomic recovery and attractive valuations, the conditions seem ripe for a strong rebound in A-shares. Additionally, the greater presence of domestic investors strengthens pricing power in the A-share markets, suggesting that should indices dip, state-owned entities might step in to support liquidity.

Goldman Sachs argues that under the current context of affordable housing and urban village renovations, the impact of real estate on economic performance is likely to improve over the coming year. The industry is now viewed as bifurcated between traditional real estate and new forms such as affordable housing. While demand for traditional real estate may decline in response to demographic shifts, government initiatives can create new demand through targeted asset acquisition and construction of supportive housing. Projections suggest that in 2024, real estate's detriment to GDP growth might decrease to 1%, down from 1.5% in 2023.

Forecasts for international oil pricing suggest variations between $80 to $100 per barrel next year. As the largest consumer globally, fluctuations in oil prices could notably affect domestic inflation figures in China. Recently, Wall Street sentiment surrounding oil price projections has turned more skeptical, with Goldman Sachs and Morgan Stanley adjusting their forecasts downwards as global supply increases, which includes risks from OPEC+ nations. Goldman Sachs lowered its Brent forecast for 2025 to $77 per barrel comparing it to Morgan Stanley’s estimates hovering around $75 to $78 per barrel.

Looking at the currency landscape, Goldman Sachs posits that with anticipated interest rate cuts by the Federal Reserve next year, the yuan's exchange rate will likely fluctuate around 7.15. The emphasis for 2024 is on stabilizing the real estate sector while maintaining foreign demand. The bank predicts the yuan might appreciate slightly to 7.05, buoyed by a rebound in consumer spending and high household saving rates. The gradual release of these savings will provide a significant boost to consumption and economic expansion, potentially attracting foreign investments into Chinese markets.

Goldman Sachs' positive revision of China's GDP is expected to have notable implications on the global economy. As one of the world's economic powerhouses, China's growth trajectory has the potential to spur overall global growth. In prior analyses, Goldman Sachs has suggested that a recovery in China could result in an additional 1% increase in global economic growth.

Furthermore, the growth in domestic demand within China has beneficial implications for countries geographically close to it, likely resulting in an approximate 0.4% GDP growth boost for many Asia-Pacific economies. Nations like Malaysia and Thailand that are electronics hubs significantly rely on Chinese imports, and similarly, the Philippines depends heavily on agricultural materials from China. Heightened demand from China is also likely to uplift global commodity prices, principally oil, with stakeholders anticipating that Chinese demand for oil may climb back up by a million barrels daily, leading to a surge in prices.

Additionally, increased outbound travel demand from China is expected to rejuvenate the service sectors in host nations, offering a boost to their economies as well. Thailand, anticipating a resurgence of Chinese flights, projects an influx of 7 to 10 million Chinese tourists arriving in Bangkok in 2023 alone.

Beyond Goldman Sachs, various international investment entities have similarly raised their expectations for China's economic growth, further enhancing global confidence in China's recovery and providing crucial support for the stability and development of the global economic landscape.

The increase in Goldman Sachs’ GDP forecast serves as a beacon of optimism for China’s economic trajectory going forward. On one hand, the government's stimulus plans will continue to exert positive influence, fostering steady growth. As the momentum from these policies builds, sectors such as manufacturing and tourism are set to thrive.

In the manufacturing domain, high-tech manufacturing will remain a critical driver of growth. In the first quarter alone, the value-added output from the high-tech manufacturing sector surged by 7.5%, outpacing the broader industrial average significantly. Industries such as smart automotive systems, semiconductor manufacturing, and integrated circuit production have experienced staggering growth rates of 61.5%, 40.6%, and 18.5%, respectively.

The tourism sector, too, is anticipated to keep contributing notably to economic expansion, fueled by the gradual resurgence of both domestic and international tourism markets. An increase in inventory further indicates positive business confidence moving forward, which will help propel the economy.

In conclusion, Goldman Sachs' adjustment of the GDP forecast portends upward trends for China's economic future. With proactive government stimulus, robust performance in key economic data, and recovery in the global economy, there’s a solid foundation for China to achieve more stable and sustainable growth going ahead.