Goldman Sees China Growth Slip to 4% as Stimulus Bets Climb
0h ago|5 min readStandard
Fazen Markets Editorial Desk
Collective editorial team · methodology
china-gdpmonetary-policy
Fazen Markets Editorial Desk
Collective editorial team · methodology
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China's economic growth decelerated toward 4% year-on-year in the early part of the third quarter, according to an analysis from Goldman Sachs, increasing market pressure on Beijing to deploy more substantial fiscal and monetary support. The slowdown from 4.3% in the prior quarter underscores the challenge of achieving the government's annual growth target of 4.5% to 5%, with economists at major banks expressing uncertainty over the scale of Beijing's policy response. The divergence in bank estimates, with Macquarie near 4.2% and BNP Paribas at 4.1%, highlights the lack of consensus on the economy's underlying momentum. As of 21:52 UTC today, this macro uncertainty coincides with significant moves in global markets, including a 6.71% 24-hour gain for NEAR, bringing its price to $2.01, and a 4.05% rise for TGT to $165.44.
China's growth trajectory is a primary driver of global commodity demand and Asian equity performance. The current slowdown is particularly significant as it follows a period of already subdued expansion and occurs against a backdrop of persistent trade tensions and rising oil prices. The last time China's quarterly GDP growth dipped near 4% was during the initial phase of the post-pandemic recovery, a period met with aggressive fiscal and monetary easing. The current deceleration, described by Goldman's chief China economist Hui Shan as demand-driven, started from a lower base and has affected sectors that had previously shown resilience.
The immediate catalyst for the renewed focus on stimulus is the soft July data for industrial output, consumption, and investment. This broad-based weakness prompted Premier Li Qiang to convene a cabinet meeting on August 17, calling for ramped-up supportive measures to meet annual targets. The People's Bank of China (PBOC) has not adjusted its benchmark policy rate or the reserve requirement ratio (RRR) in over a year, a period coinciding with heightened trade pressure from the United States. Factory-gate inflation, reinforced by higher oil prices, has further complicated the central bank's calculus, making traditional rate cuts less palatable.
The core data reveals a clear deviation from official targets. Goldman Sachs estimates GDP growth slowed to about 4% early in Q3, down from 4.3% in Q2. Macquarie Group's analysis of July data implies a monthly growth rate of approximately 4.2%, while BNP Paribas places the figure at 4.1%. All three estimates fall short of the roughly 4.5% pace required in the second half of 2026 to achieve the government's full-year target band.
A Bloomberg poll of analysts conducted in July underscores market expectations for a cautious PBOC, with the median forecast pointing to an unchanged policy rate through both 2026 and 2027. In contrast, a cut to the reserve requirement ratio is seen as a more probable easing tool, with many analysts anticipating a move in the fourth quarter. This policy divergence is critical for asset pricing. For context, the 24-hour trading volume for NEAR was $361.39 million, reflecting active market participation amid broader macroeconomic shifts, while TGT traded within a daily range of $160.23 to $165.48.
| Metric | Goldman Sachs | Macquarie | BNP Paribas |
|---|---|---|---|
| Estimated Early Q3 GDP Growth | ~4.0% | ~4.2% | ~4.1% |
The growth slowdown and uncertain policy path create a reactive environment for policy-sensitive assets. Asian equities, particularly Chinese domestic demand plays, and industrial commodities like copper and iron ore, are likely to remain volatile, responding to each new economic data point. A shift in stimulus focus from supply-side manufacturing supports to direct consumption measures would be interpreted as a more durable positive catalyst for consumer discretionary and retail sectors. The current emphasis on technological innovation, while boosting certain tech hardware stocks, is unlikely to broadly lift household incomes, as the manufacturing sector accounts for only about one-fifth of employment.
A key risk to this analysis is that Beijing may prioritize long-term structural goals over short-term growth stabilization, accepting a miss on the annual target. State media commentaries have already begun emphasizing the quality and sustainability of growth over the headline rate. Market positioning suggests investors are cautiously short the yuan and Chinese equities, awaiting a clearer signal from policymakers. Flow data indicates capital is rotating towards markets with more predictable monetary trajectories, such as the United States, where equities like TGT demonstrate strong momentum with its 4.05% gain.
The primary near-term catalyst is the release of August and September economic data, which will determine if the slowdown is stabilizing or accelerating. BNP Paribas economists have indicated that if growth remains at or below 4% through this period, a fresh stimulus package is likely in late September or early October. Markets will scrutinize the Politburo meeting statements for any change in tone regarding growth support versus structural reform.
Key levels to watch include the yuan's exchange rate against the dollar for signs of PBOC intervention and the PBOC's medium-term lending facility operations for hints of liquidity injection. The most probable policy action remains a reserve requirement ratio cut in the fourth quarter, which would provide targeted liquidity support without the symbolic weight of a benchmark rate cut. A breach of the 4% growth threshold in official Q3 GDP data, due in mid-October, would significantly raise the stakes for more aggressive year-end stimulus.
A reserve requirement ratio (RRR) cut reduces the amount of cash that banks are required to hold in reserve, thereby increasing the funds available for lending. This action is considered a targeted monetary easing tool that boosts liquidity in the financial system without directly lowering benchmark interest rates. An RRR cut can stimulate credit growth, particularly for small businesses and specific sectors targeted by government policy, but its effectiveness in broadly boosting consumer demand is more limited compared to direct fiscal stimulus.
The current slowdown differs from 2023 in its drivers and the policy environment. The 2023 recovery was initially strong but lost steam due to a property sector crisis and weak external demand. The present deceleration is more demand-driven and broad-based, affecting previously resilient areas like industrial output. the PBOC now faces additional constraints, including firmer factory-gate inflation from higher oil prices and sustained trade tensions, reducing its appetite for aggressive rate cuts compared to the previous year.
China has seldom missed its annual GDP growth target since formally introducing them. The last significant miss occurred in 2022, when the 5.5% target was not met due to prolonged COVID-19 lockdowns. On that occasion, the government responded with a significant infrastructure-focused stimulus package in the following quarter. A miss this year would be more politically sensitive, as it would occur absent a major external shock, potentially forcing a reconsideration of the policy mix between supply-side reforms and demand-side support.
China's growth slowdown to near 4% increases pressure for stimulus, with markets pricing a Q4 RRR cut as the most likely policy response.
Disclaimer: This article is for informational purposes only and does not constitute investment advice. CFD trading carries high risk of capital loss.
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