Goldman Sachs: April Data Misses Expectations; Q2 GDP Growth Likely to Slow to 4%

Overview

This report, issued by Goldman Sachs’ Economics team, highlights three key recent developments in China’s macroeconomic landscape: (1) broad underperformance of April economic activity data, driven by global energy supply disruptions and slower fiscal spending; (2) early signs of stabilization in the property market—particularly price rebounds in first-tier cities; and (3) a significant net foreign exchange inflow in April, alongside continued—but still limited—progress in RMB internationalization. The report revises down its Q2 growth forecast but underscores that property market stabilization and improved capital flows warrant close monitoring.

Core views

Demand and Growth Outlook: April’s Chinese economic activity data were broadly weak. Industrial output grew 4.1% YoY, retail sales rose only 0.2% YoY, and fixed-asset investment declined 8% YoY. Goldman Sachs’ proprietary China Macro Activity Pulse (MAP) indicator registered the most negative macro data surprise since May 2023. Part of this weakness reflects genuine headwinds from global energy supply disruptions (e.g., sharp declines in chemical and refining output), but technical and policy-related factors—including notably slower fiscal spending—also contributed. Based on this, Goldman Sachs expects Q2 real GDP annualized quarter-on-quarter growth to slow from 5.3% in Q1 to 4.0%, and maintains that the ‘strong exports, weak domestic demand’ pattern will persist. Positive Signals from the Property Market: Despite generally soft macro data, the property market has shown some encouraging signs. Goldman Sachs’ high-frequency tracker indicates stable sales of both new and existing homes. Official statistics—the National Bureau of Statistics’ 70-city price index—show a slight narrowing of month-on-month price declines, with both new and existing home prices rising in first-tier cities. The report notes that if China’s property market stabilizes, it could significantly boost market confidence and capital market performance; these signals therefore merit close attention. Foreign Exchange Flows and RMB Internationalization: On capital flows, Goldman Sachs’ preferred measure shows net foreign exchange inflows of $37 billion in April. Concurrently, policy communications signal stronger official support for RMB internationalization. However, the report emphasizes that despite incremental progress, the RMB’s share in global financial markets remains very small. For its role to meaningfully expand, improvements are still needed across financial infrastructure, liquidity, risk management tools, and RMB-denominated asset supply.

Analysis framework

Goldman Sachs employed a multi-dimensional, cross-validated analytical approach. First, it decomposed April’s high-frequency macro indicators (industrial production, consumption, investment) and applied its proprietary MAP scoring framework to quantify the extent and drivers of the slowdown—distinguishing external shocks from domestic policy effects. Second, it compared high-frequency trackers with official statistics to detect marginal shifts in the property market, particularly focusing on volume and price dynamics in first-tier cities to assess bottoming behavior. Finally, it linked balance-of-payments data and policy developments to analyze both short-term capital flows (foreign exchange inflows) and long-term structural trends (RMB internationalization), highlighting their interplay and gaps.

Methodology notes

• Macroeconomic framework

  Proprietary Macro Activity Pulse (MAP Score)

  Goldman Sachs uses its proprietary China Macro Activity Pulse (MAP) indicator to comprehensively gauge how macro data deviate from expectations—helping investors quickly interpret the aggregate macro implications of data releases, rather than relying on individual metrics alone.

• Sector/Industry Analysis FrameworkSupply-demand framework

  Structural Divergence Between Strong Exports and Weak Domestic Demand

  The report identifies a ‘strong exports, weak domestic demand’ pattern in China’s economy. It analyzes the divergence between external demand (exports) and internal demand (consumption and investment) to explain the structural drivers behind the GDP growth slowdown.

Key data

• April Industrial Output YoY Growth4.1%Below expectations, reflecting weakening in the production sector
• April Retail Sales YoY Growth0.2%Weak consumer recovery
• April Fixed-Asset Investment YoY Growth-8%Sharp decline in investment
• Q2 Real GDP Annualized Quarter-on-Quarter Growth Forecast4.0%Markedly slower than Q1’s 5.3%
• April Net Foreign Exchange InflowUSD 37 billionNet inflow observed in funding conditions

Impact & implications

The report concludes that April’s data weakness stems largely from transitory factors (energy shocks, fiscal timing), yet the trend of slowing growth is now established. Stabilization in the property market represents a key potential upside catalyst; sustained improvement would be critical for restoring household and corporate confidence. Moreover, while RMB internationalization remains gradual, the large net foreign exchange inflow suggests easing near-term capital outflow pressure, supporting exchange rate stability. Investors should monitor whether fiscal policy will be stepped up to offset weak domestic demand and whether property sales data show sustained improvement.

Risks

• Prolonged global energy supply disruption beyond expectations
• Excessive slowdown in domestic fiscal spending
• Unsustainable rebound in property prices

What to watch

• High-frequency property sales and price data in subsequent months
• Changes in the pace of fiscal spending
• Progress in RMB’s share of global payments and reserves