Goldman Sachs Downgrades China

Goldman Sachs became the latest bank to downgrade China’s economic growth on Monday, saying tighter financial conditions and reforms are downside risks for the world’s second largest economy.

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 money market rates hit a record high last Thursday with the seven-day repurchase rate, a measure of interbank funding availability, rising above 10 percent, while the overnight repurchase rate jumped as high as 30 percent, creating panic among investors.

via CNBC

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza