Goldman Sachs has cut its forecast for China's second-quarter GDP growth to 4.5%, pointing to sluggish domestic demand that's dragging on the world's second-biggest economy. The revision, which is below the official target, could push Beijing toward new stimulus measures and is already drawing attention from global investors.
Why the forecast was cut
The bank's economists lowered their previous estimate after fresh data showed consumer spending and industrial activity remain weak. Domestic demand, a key engine for growth, hasn't rebounded as expected after the post-pandemic reopening. That softness means the economy is growing more slowly than the government's stated goal of around 5% for the year.
Goldman's new 4.5% figure for the second quarter is a direct acknowledgment that the recovery is stalling. The forecast covers April through June, a period that typically sees a seasonal pickup. This year, it's not happening.
The sluggish demand raises the odds of more policy easing from China's central bank and fiscal authorities. Analysts expect the People's Bank of China could cut interest rates or reserve requirements in the coming weeks. The government may also accelerate infrastructure spending or introduce new incentives for consumers. The goal would be to lift confidence and put growth back on track.
But policy tools have limits. Earlier rounds of easing didn't fully revive spending, and property market troubles continue to weigh on household wealth. The question now is whether new measures will be aggressive enough to make a difference.
Global market implications
China's slowdown isn't just a domestic story. Lower growth there can hit global markets, especially sectors tied to consumer goods, commodities, and luxury brands. Investors are watching closely as a weaker Chinese economy could reduce demand for raw materials and manufactured products from other countries.
Sentiment in emerging markets may also take a hit. If China's growth falters, it could drag down currencies and stocks across Asia. For now, the revised forecast adds to uncertainty at a time when central banks elsewhere are still fighting inflation.
Goldman's cut comes ahead of China's official second-quarter GDP release, expected in mid-July. Until then, markets will be parsing every data point for signs of whether the slowdown is deepening or stabilizing.
