China's economy is making a turnaround even though ‘3D challenges remain’

Goldman Sachs raised its 2024 and 2025 growth forecasts for China, expecting a 4.9% GDP increase this year and 4.7% next year.

Goldman Sachs Group Inc. upgraded its forecasts for China’s economic growth in 2024 and 2025 after Beijing unveiled a series of measures to shore up growth, including plans for greater public spending announced over the weekend.

Goldman Sachs cautions that despite the growth forecast upgrades, China's long-term structural issues, including demographics and debt, remain unchanged and will continue to pose challenges beyond 2026.

The bank expects China’s gross domestic product to expand 4.9% this year, up from 4.7% previously. It also lifted its growth prediction for next year to 4.7% from 4.3%, according to a report dated Sunday.

“The latest round of China stimulus clearly indicates that policymakers have made a turn on cyclical policy management and increased their focus on the economy,” Goldman economists including Hui Shan wrote.

The upgrade comes as economists and investors assess the potential effects of Beijing’s push since late September to boost an economy facing weak sentiment and persistent deflationary pressures. The Finance Ministry vowed greater fiscal support in a much-anticipated briefing on Saturday, although it lacked steps to boost consumption some analysts say are needed to beat deflation.

In addition, the nation’s top economic planning agency, the National Development and Reform Commission, said last week it would pre-approve 200 billion yuan worth of investment projects for next year by the end of this month. That’s an effort to meet the “around 5%” GDP growth target for this year, the bank said.

The easing measures that were announced and hinted at will translate into a 0.4 percentage point increase to economic growth next year, helping offset a projected 1.9 percentage point drag from slowing exports and continued property downturn, according to the report.

However, Goldman warned that China’s structural challenges remain and maintained its forecasts for 2026 and beyond.

“The ‘3D’ challenges - deteriorating demographics, a multi-year debt deleveraging trend, and the global supply chain de-risking push are unlikely to be reversed by the latest round of policy easing,” the economists wrote.