China may be shaking out of its slump, and its economy could grow 5% this year after a surprising first-quarter performance, BofA says

BofA still doesn't expect "a full-blown growth rebound" as China grapples with a real estate crisis and weak consumer demand.

• Bank of America upgraded is forecast for China's 2024 GDP growth to 5.0% after a strong first quarter. 
• China's breakout from its economic slump may also mean less government support ahead, BofA said.
• BofA doesn't expect a "a full-blown growth rebound" as real estate woes and weak demand are still a problem. 

Bank of America boosted its forecast for China's economic growth in 2024 on the heels of a surprisingly strong first-quarter performance from the world's second-largest economy.

The bank raised its outlook for full-year GDP growth to 5.0% from 4.8% and raised its 2025 forecast to 4.7% from 4.6%. The upward revision comes after China saw 5.3% growth in the first quarter thanks to the county's infrastructure and manufacturing investments, propelling it closer to Beijing's  5% GDP target, BofA analysts led by Helen Qiao wrote on Friday. 

On the investment front, BofA said the FAI index – a key indicator of capital expenditures on fixed assets — confirmed that the investment strength seen in the first two months of 2024 wasn't just another "head fake."

A 9.9% surge in the manufacturing sector and an 8.8% rise in infrastructure drove year-to-date FAI growth to 4.5% year-over-year, despite a 9.5% decline in property investment.

"This is particularly meaningful, as investment usually leads the business cycle in China because this is the one area that tends to benefit from policy support first," the analysts said. 

Still, BofA doesn't expect "a full-blown growth rebound" as China is still in the throes of a real estate crisis and dealing with consumer demand issues.

"The caveat is that other activity data including retail sales and industrial production still points to tepid domestic demand," the analysts said, adding that March's industrial production and retail sales figures fell short of expectations. 

"Bottom-up channel checks and indicators, such as cement production and shipment, also seem to contrast with the strong top-down infrastructure growth." 

With a robust first quarter dataset in hand, policymakers may be less inclined to intensify easing measures, dashing hopes for imminent policy support, according to the bank. The analysts wrote that they anticipate a gradual growth deceleration through the rest of 2024 as policy support wanes.

Apart from the potential for waning government aid, a worsening property sector that's eroding buyer confidence, and a substantial drop in Chinese exports amid geopolitical tensions add downside risks to China's growth prospects, BofA said.