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.
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