Bank of America cuts China growth forecast under Evergrande shadow

Reuters

Published Sep 21, 2021 05:53AM ET

Updated Sep 21, 2021 07:55AM ET

By Anushka Trivedi

(Reuters) -Bank of America cut its China growth forecast on Tuesday in response to intensifying troubles at property giant Evergrande, a fresh COVID outbreak and a widespread regulatory squeeze, going beyond warnings issued by other investment banks.

While BofA trimmed its real gross domestic product (GDP) growth forecast for China for this year to 8.0% from 8.3%, it reserved its biggest cut for 2022 to 5.3% from 6.2%. It also trimmed its 2023 outlook to 5.8% from 6.0%.

BofA's cuts come as economic headwinds have been growing for China's $14.5 trillion economy and reflect growing concern that Evergrande's troubles could have a wide impact.

Recent weak data including retail sales and factory output also pointed towards a downturn in the country's economy due to supply chain bottlenecks and COVID-19, after China posted a stellar recovery from the pandemic last year.

Standard Chartered (OTC:SCBFF) and ING said last week they considered inadequate policy support as a major downside risk to their GDP forecasts and called for a 50 basis point cut to the central bank's reserve requirement ratio in the fourth-quarter.

Goldman Sachs (NYSE:GS) cautioned on Monday that further deterioration in the property market would challenge economic policies in 2022 unless China's growth target was set much lower than 5%-6%.

China's real estate sector, comprising about a quarter of the country's economy, has been in the spotlight since the risk of debt-saddled Evergrande defaulting increased, with markets tanking on Monday over its repercussions.

Evergrande has total liabilities of $305 billion with two bond payments due this week, which it is unlikely to fulfil. Its total liability burden stands at less than 2% of GDP, signalling Beijing is well placed to prevent a wider economic shock.