Goldman Sachs has hiked its forecasts for Chinese GDP and reckons the magical growth figure of 8 per cent could be reached this year.
Our new forecasts predict real GDP growth of 8.3% in 2009 (versus 6.0% previously) and more importantly, to reach 10.9% in 2010 (up from 9.0%), significantly above consensus. We expect above-trend growth in 2010 to be largely driven by stronger investment growth, especially from private investment.The bank says better than expected results from November’s huge fiscal stimulus package and aggressive policy easing are behind its upgrade.
Aggressive policy easing and better-than-expected results from the stimulus have made a stronger case for China’s growth re-rating. Since the announcement of the Rmb4 trillion fiscal stimulus package last November, policymakers in China have been pushing the envelope on policy easing in only one direction—for more and more. The pace of implementation of new infrastructure investment and the scale of domestic credit expansion have been unprecedented. However, as we have long argued, one should probably discount some of the official statistics for quality/seasonality reasons, especially in any one particular data series. We believe the message from the aggregate macro data along with other anecdotal evidence, such as domestic commodity demand, is clear: the aggressive policy stimulus has been working.
Of course, much of this perceived recovery is already in the price – the Shanghai Composite Index hit a eight month peak before closing lower on Wednesday.
But if Goldman’s forecasts are correct the Chinese would seem to have pulled off quite a trick, as the bank notes.
We believe the strong growth rebound in 1Q2009 reflects policy stimulus jump-starting a fast rotation of growth from export-driven to domestic-investment driven. In 2H2008, China experienced its most severe and sharpest slowdown in 30 years. However, Chinese policymakers responded almost immediately by rolling out a substantial stimulus package and aggressively easing monetary policy.
As a result, the stimulus has released substantial “pent-up” demand in infrastructure investment, especially in terms of transportation (railways, highways, airports, and ports) and utilities. This caused strong FAI growth to come in with almost no time lag after the first two batches of central-government-led investment projects were implemented in December 2008 and before the Chinese New Year in January 2009. While many argue the effect has been boosted by the credit surge, we tend to think the commercial bank loan expansion was as much a result of government policies, including moral suasion by the central bank, as a reflection of underlying demand being relatively firm.
Related links:
China, the currency factor and copper – FT Alphaville
China’s economy in 2009 and beyond – Nouriel Roubini, RGE Monitor