Goldman Raises China’s Growth Forecasts

I posted an update on China’s growth outlook a few days ago and said ” … China’s improving PMI seems to indicate that the country might have seen the worst of the growth statistics”. I also referred to a report by BCA Research, stating that “a broad range of macro indicators suggest that the economy may have begun to rebound”.

Interestingly, a “flash” report (hat tip: Fullermoney) by Helen Qiao and Yu Song of Goldman Sachs’s (GS) Asian team has just been published in which they have significantly raised their real GDP growth forecasts for China for 2009 and 2010.

Goldman’s new forecasts predict real GDP growth of 8.3% in 2009 (versus 6.0% previously) and, more importantly, that it will reach 10.9% in 2010 (up from 9.0%). These figures are significantly above consensus.

According to the team, the forecast was revised higher as (1) Chinese policy stimulus has been more aggressive, and (2) the domestic demand response has been stronger and has occurred earlier than originally forecast. They expect above-trend growth in 2010 to be largely driven by stronger investment growth, especially from private investment.

The team added, “… we expect policymakers to eventually normalize and shift away from aggressive policy loosening, but only when they are more assured of a stabilization in domestic unemployment and external demand. This would give additional insurance to the growth trajectory we foresee”.

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