Goldman Sachs has joined a swag of banks and international agencies in downgrading Chinese economic growth, lowering its GDP forecast amid tighter financial conditions and a new found tolerance amongst China’s authorities towards lower growth. From CNBC:
The bank cut China’s gross domestic product (GDP) growth forecast for the second quarter to 7.5 percent on the year from 7.8 percent previously. It also revised full-year growth estimates to 7.4 percent for 2013 and 7.7 percent for 2014, from 7.8 percent and 8.4 percent, respectively. The official growth target for the year is 7.5 percent.
“The recent tightening of the interbank market has sent a strong policy signal that the strong credit growth earlier in the year will likely not continue,” Goldman said in a note. “We estimate this to tighten the FCI [fixed capital investment] by another 30-40 basis points in the coming months, in addition to the FCI tightening of 100 basis points so far this year driven by the rapid yuan appreciation on a trade-weighted basis”…
China’s recent attempts to tame informal lending and slow credit growth shows the government has focused priorities on reforms over growth, Goldman said.
“These policies help to foster more sustainable medium-term growth, but will test the government’s tolerance for a cyclical downturn,” Goldman said, adding that reforms from policymakers will be negative for economic growth in the near term.
