China’s economy will grow 2.5% this year, UBS says

Bloomberg reports that China’s economy will grow 2.5% this year according to UBS Group AG, which raised its forecast from 1.5% due to the recovery in domestic consumption and strong investment.

The economy will expand 5.5% this quarter from a year earlier, and 6% in the final three months of 2020, the bank said in a new report from Chief China Economist Wang Tao and others. The biggest downside risk to that rebound would be a resurgence of the coronavirus outbreak at home and abroad, they wrote.

U.S.-China tensions, coupled with the prospects for supply chain decoupling and weak company profits, are likely to drag on corporate sentiment and trade, UBS cautioned, but overall, macro-policy will remain supportive in the second half.

The surprising strength of Chinese exports in the second quarter prompted the economists to increase their estimate for trade in the rest of the year, and they also revised up the inflation forecast to 2.5% for 2020 from 2.4% earlier, due to recent floods in the south and a stronger recovery. The property sector is expected to show more resilience, thanks to the economic recovery and effects of easier credit, according to the report.

Oxford Economics also upgraded its full-year GDP forecast to 2.5% from 2% this week on a strong rebound in the second quarter, while flagging risks ahead including policy makers’ worries about frothy equity markets, renewed export restrictions due to virus cases and escalating China U.S. trade tensions. Data from the second quarter may also have overestimated the strength of the rebound, they said.