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Goldman Sachs: China Q1 GDP to grow 10%

(Agencies)
Updated: 2008-04-08 14:44

Goldman Sachs said it expects China's first quarter economic growth to slow to around 10 percent from 11.2 percent in the fourth quarter last year, mainly due to slowing net export growth.

Inflation is likely to remain high because of rapid money supply growth, although it will ease slightly from February as the impact of severe snowstorms has worn off, Goldman Sachs said in a note.

It projects China's consumer price index inflation to ease to 8.4 percent in March from 8.7 percent in February.

"With monetary growth remaining at a high level, we see persistent inflationary pressures which will keep CPI inflation at elevated levels in the near-term," Goldman Sachs said.

"Despite recent comments by various official sources on balancing the risks of high inflation and low growth, we believe inflation pressures are more acute which require immediate and decisive actions to be taken," it said.

Tightening moves include further interest rate and reserve requirement hikes, credit controls and currency appreciation, the note said.

Producer price inflation is expected to accelerate to 7.3 percent year-on-year in March from 6.6 percent in February as commodity prices continue to rise, it said.

Meanwhile, M2 money supply growth is forecast to moderate to 17.3 percent in March from 17.5 percent in February, while total loan growth is expected to soften to 16.6 percent from 17.1 percent, Goldman Sachs said.

"This implies an incremental increase of about 1.4 trillion yuan ($200 billion) in the first quarter, or nearly 40 percent of the reported annual quota of 3.6 trillion yuan set by the authorities at the beginning of the year," it said.

Year-on-year export growth is likely to rebound significantly from a low base to about 32 percent from 6.5 percent in February. The March reading will be significant because it is the first month of the year not affected by the Chinese New Year holidays, Goldman Sachs noted.

"A 32 percent growth will imply a continuation of a gradual slowdown in exports growth momentum since the second half of 2007," it said, adding that imports are likely to remain solid on strong domestic demand.

The trade surplus is likely to remain at around $11 billion, the note said.

China will release first quarter GDP data and March economic indicators over the next two weeks.