Nomura Revised China’s 2012 GDP growth forecast upward13 March, 2012, 15:44. Posted by Zarathustra
Tags: Economy, Nomura
Last year, Nomura said there is 1-in-3 chance for China to experience a hard landing by the end of 2014.
For now, however, they are revising their 2012 GDP forecast upward from 7.9% yoy (real) to 8.2% yoy (real):
We are revising our 2012 China GDP growth forecast up to 8.2% from 7.9% for three reasons. First, economic momentum slowed sharply in the first two months of 2012, but was still slightly better than we expected. In particular, fixed asset investments (FAI) grew by 21.5% y-o-y versus our previous estimate of 18% for full Q1. Second, import growth was much lower than we expected (7% in the first two months, versus our full Q1 forecast of 15%), leading to a smaller-than-expected trade deficit. Third, inflation dropped sharply in February, leaving policy makers with room to loosen monetary policy.
Our view of China’s economic and policy outlook remain broadly unchanged. The economy is slowing due to persistent weakness in the property and export sectors, and policy makers are under pressure to loosen policy to boost economic growth. We maintain our view that the People’s Bank of China will cut interest rates by 25bp in March and reduce the reserve requirement ratio (RRR) by 50bp in April. Our out-of-consensus call on an interest rate cut is gaining traction as loan demand has weakened quickly in recent months, and a RRR cut alone is not a solution, as it would primarily boost loan supply but not loan demand. These policy loosening measures should help boost GDP growth in H2 to above 8%.
Governmental policy on the property markets is a critical issue and the primary risk to our forecasts. We believe that property market policies will be loosened moderately as growth slows. This loosening may occur gradually as we receive more disappointing macro data over the coming months, particularly on housing investment. There is obviously a high degree of uncertainty on the timing and size of any potential loosening, which increases both upside and downside risks to our forecasts.