More on those China slowdown fears, which played a part in Monday’s sell-off.
Goldman Sachs has cut its China GDP estimates for this year and next, citing concerns about weaker US growth, higher oil prices (more on that to follow — but the broker now sees Brent at $130 a barrel in 2012) and of course inflation:
Overall inflation in China is more entrenched than we had expected: Although our economics team still forecasts China CPI yoy to peak in June at 5.6% on yoy terms, we expect the subsequent decline to be more gradual than previously envisaged. Inflation may remain at more than 5% yoy until August, leading us to raise our 2011 CPI forecast from 4.3% to 4.7%.
Inflationary pressure raises the threshold for easing policy: Policymakers may not loosen policy as quickly as they did in 3Q10 given evidence of below-trend growth, because there were fewer inflationary concerns before. We now expect policy inflection sometime in 3Q11 to normalize on the back of monetary policy and a potentially more proactive fiscal stance.
The net result is that Goldman has lowered its 2011 GDP forecast to 9.4 per cent and its 2012 forecast to 9.2 per cent (from 10 per cent and 9.5 per cent previously).
And it reckons that growth could dip below trend in the second quarter before recovering.
Our new GDP estimates show a significant slowdown in 2Q11 to 8.0% qoq (significantly below trend), then recovering towards trend in 3Q11 at 9.0% and returning to trend in 4Q11 at 9.3%. This is both a sharper and more extended slowdown than we had previously forecast.
Fingers crossed for that rebound, which Goldman presumably thinks will happen. After all, how can one square these gloomy comments on China with Tuesday’s bullish call on commodities?
Chinese commodity imports are falling – FT Alphaville