GOLDMAN Sachs slashed its 2016 forecast for China down to 6.4 percent from 6.7 percent while sticking to its 6.8 percent prediction for this year.
The reduction follows “a very weak” growth in the world’s second-largest economy in early 2015, wrote Andrew Tilton, an economist for Asia for the investment bank.
“It reflected a combination of slowing credit growth, reform-driven fiscal tightening, and an appreciating yuan, among other factors,” Tilton said in a report. “Meanwhile, policy uncertainty has increased.”
China’s gross domestic product expanded 7 percent from a year earlier in the first half, in line with the official full-year target of around 7 percent.
The results surprised the market because the 7-percent increase in the second quarter turned out to be higher than the previous market expectation of a 6.8-percent rise. But the data in June and July, including trade, industrial production, retail sales and fixed-asset investment, all showed moderated growth, indicating the long-awaited recovery may be very short-lived.
There are also fears that China’s manufacturing sector may deliver its worst performance in more than six years. The Caixin Flash China General Manufacturing Purchasing Managers’ Index, the earliest available indicator of China’s industrial sector, fell to a 77-month low of 47.1 in August from the final reading of 47.8 in July.
“The growth has slowed in recent months,” Tilton said. “It prompted market and policy concerns of a further spate of easing measures.”
Last week, China’s central bank announced cuts in both interest rates and reserve requirements for lenders in a bid to stabilize the stock market and shore up the economic performance. It was China’s fifth interest rate cut since last November, along with other measures like quicker implementation of investment projects such as railway and subway in many areas.
But the outlook remained uncertain.
Tilton said China may see weakening performance in the second half because the financial services industry had lost the growth impetus due to sharp corrections in the stock market, which helped the financial industry contribute 0.5 percentage points to the 7-percent GDP growth in the first six months.
“The wobbly stock market and the sudden move in the yuan fixing have also amplified uncertainties in the policy-making, suggesting downside risks to the August and probably September activity data,” Tilton said. The Tianjin port blast also had negative effects on the economy, especially on foreign trade.