Goldman Says China Easing Hopes Revive as Growth Slows to 4%

Expectations for further monetary easing in China have returned after Goldman Sachs estimated that the country's economic growth slowed to around 4% at the start of the third quarter. The estimate is below Beijing's annual growth target of 4.5% to 5% and comes after weaker-than-expected July data raised concerns over domestic demand.

Goldman Sachs chief China economist Hui Shan said the slowdown appeared to be demand-driven, with July activity weakening across areas that had previously shown resilience. The assessment has revived market expectations that Chinese policymakers could introduce additional measures to support growth.

Growth Slips Below Target

Goldman Sachs estimates China's GDP growth at about 4% year-on-year in the early part of the third quarter, compared with 4.3% in the previous three months.

The estimate comes after official July data showed industrial production, consumption and investment all performed worse than economists had expected. Industrial output rose 4.5% year-on-year in July, according to official data.

The weaker figures have increased pressure on Beijing to provide additional support as policymakers seek to keep the economy on track to meet the annual target.

Easing Expectations Return

The latest slowdown has prompted traders and investors to increase their expectations for monetary policy easing, according to Goldman Sachs.

Earlier in the year, expectations for an interest-rate cut had weakened as higher oil prices contributed to concerns over producer-price inflation. The renewed deterioration in economic activity has now brought policy easing back into focus.

Analysts see a reduction in banks' reserve requirement ratio as one possible measure, which could release additional liquidity into the financial system.

July Data Raise Concerns

The July figures have become a key concern for economists because the slowdown affected several components of the economy simultaneously.

Goldman Sachs said the July deceleration was more concerning than the slowdown seen earlier in the year because it came from a weaker starting point and affected sectors that had previously appeared relatively resilient.

Other international banks have also estimated that China's monthly growth rate is now close to 4%. Macquarie has put the figure at about 4.2%, while BNP Paribas estimates roughly 4.1%.

Beijing Signals More Support

Chinese authorities have already indicated that additional economic support could be introduced.

Premier Li Qiang called for stronger supportive measures at a cabinet meeting on August 17 and urged officials to work towards the country's annual economic and social development targets. Beijing has also been considering additional assistance for domestic businesses and consumers through loan subsidies and other financing support.

Revised fiscal measures introduced earlier this month expanded interest-rate subsidies for small and micro businesses and consumers.

Consumption Remains Weak

The latest concerns extend beyond industrial activity. Weak household demand remains a major challenge for the Chinese economy.

Goldman Sachs has cautioned that China's strong focus on technology and high-tech manufacturing may not generate a significant improvement in household incomes and consumption because manufacturing accounts for only about one-fifth of employment.

The prolonged property downturn has also weighed on consumer confidence and remains a major structural drag on domestic demand.

Policy Outlook In Focus

The central question for markets is whether Beijing will move beyond targeted fiscal measures and introduce broader monetary or fiscal stimulus.

Goldman Sachs has highlighted the possibility of additional easing if growth remains close to or below 4% during August and September. BNP Paribas has similarly suggested that weaker growth could prompt fresh stimulus later in September or early October.

China's policymakers have so far favoured targeted support rather than a large-scale stimulus package, signalling that they remain cautious about the longer-term consequences of aggressive easing.

Global Markets Watch China

A sustained slowdown in China could have implications beyond its domestic economy, particularly for commodity demand, global manufacturing and trade.

China's exports have remained comparatively resilient, supported by strong overseas demand, while domestic consumption has lagged. Goldman Sachs previously projected China's full-year 2026 real GDP growth at 4.8%, above the consensus forecast at the time.

For investors, the next few months of economic data will determine whether the current slowdown proves temporary or develops into a broader loss of momentum.

The latest China Economy Update suggests that policymakers face renewed pressure to support growth as activity approaches 4%, making upcoming monetary and fiscal decisions increasingly important for China's economy and global markets.

Note: The 4% figure is Goldman Sachs' estimate for the pace of economic growth at the start of the third quarter, not China's official quarterly GDP figure. Official data and policy decisions may change the outlook.