Wall Street cut China's GDP forecast many times this year. One bank adjusted 6 times

International investment firms have been changing their China GDP forecasts nearly every month this year.

Wall Street cut China's GDP forecast many times this year. One bank adjusted 6 times

Important Points

CNBC's average prediction for six companies studied is now 5.1%. This is close to the "around 5 percent" Beijing declared in March.

CNBC's average prediction for six companies studied is now 5.1%. This is close to the "around 5 percent" Beijing declared in March.

Citi's new forecast is the fourth revision to its forecast this year. Morgan Stanley's forecast has been adjusted only once since January.

Nomura's forecast was changed four times during the same period. UBS changed it three times. Goldman Sachs also changed their forecasts two times.

After China's initial recovery, and three years of strict Covid control, the majority of investment banks revised their forecasts upwards in early 2019.

Quarter-on quarter revisions

Recent economic data indicate a slower than expected growth, and the authorities are not inclined to implement large-scale stimuli. The second-quarter GDP grew by 6.3% compared to a year earlier, falling short of the 7.3% predicted by Reuters' polled analysts.

Logan Wright of Rhodium Group and his team claim that the disappointing second-quarter GDP is due to revisions made to China's growth quarter-on-quarter last year.

In a report published on July 17, analysts stated that the low result helps Beijing to make the case for supporting its economy. Understand what you see in this year's data on GDP: These are narratives that have been artificially constructed for different audiences and not reports about China's performance.

CNBC's comment request was not immediately answered by the National Bureau of Statistics.

The bureau does not release multiple versions of data but instead releases quarterly GDPs relatively soon after the period ends and then issues revisions.

The Statistics Bureau has also made public statements regarding the punishment of local governments who falsify data. Long have there been questions about the accuracy of China's official data.

Goldman Sachs notedd the seasonal revisions but maintained its 5,4% growth forecast for China. Goldman Sachs said, "On the whole, we don't think that the surprises are consistent or large enough to require us to make significant adjustments to our China Growth Forecast this year."

Non-official data

Researchers are looking for alternative ways to measure growth.

The U.S. based China Beige Book is one organization that claims to survey Chinese businesses regularly in order to produce reports on the economic climate.

Shehzad Quazi, managing director of China Beige Book in New York, said that the data showed "that there was no big wave of revenge spending or explosive recovery" earlier this year.

Wall Street's predictions for China's explosive growth were based first on hype and then boosted by China's inflated GPD prints through early 2023.

Qazi gave testimony this month to the U.S. House Select Committee for the Chinese Communist Party.

The "sell-side" of investment bank research is a term that is used to describe the work done by these firms in order to inform investors about financial products and stocks.

Qazi noted that, in the case of China: "Investment banks are not just incentivized by their own business interests to promote a story of a booming China but they also refuse to publish any views which could be interpreted as being critical of China's economic growth."

Institutional Predictions

World Bank and International Monetary Fund both release regular economic forecasts of China and other nations. Their reporting schedule may mean that their predictions do not match the current economic conditions.

The World Bank has raised its growth forecast for China to 5.6% this year, from the previous 4.3%.

In April, the International Monetary Fund raised its estimate of China's GDP from 4.4% to 5.2%. The IMF spokesperson said that the growth in China was slowing and an "updated estimate" would be included in its next World Economic Outlook.

In the past few weeks, Chinese officials have emphasized that the country is on course to achieve its annual growth goal of around 5%.

JPMorgan, which was one of six firms CNBC examined, had the highest China GDP estimate so far this season at 6.4% -- and that's after the bank made a second adjustment in April.

The firm's range of forecasts has spanned the widest of all those included in CNBC's analysis, spanning 1.4 percentage points.

Look beyond 2023

Analysts expect China's economy to grow in the long term, despite the uncertainty expressed by businesses and investors about its near-term trajectory.

The Rhodium analysts stated that "Overall, it is possible to see a cyclical recovery in China's economic growth in early 2024 even without meaningful policy support during the second half 2023."

The experts said that a recovery in household consumption should boost employment in the service sector over the next four quarters. Industrial inventories, however, will need to be replenished.