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Goldman Sachs Cuts China Growth Forecast After Slowdown

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May 18 (Bloomberg) -- Goldman Sachs Group Inc. economists lowered their forecast for Chinese economic growth after data showed a slowdown in April, joining banks including JPMorgan Chase & Co. and UBS AG in paring outlooks.

Gross domestic product will expand 7.9 percent this quarter from a year earlier, down from a prior projection of 8.5 percent, Song Yu and Michael Buchanan said in a research note today. They predicted 8.1 percent growth for the full year, compared with a previous forecast of 8.6 percent.

The government may follow the May 12 reduction in banks’ reserve requirements with additional cuts and further stimulus including lowering interest rates, easing restrictions on bank lending and faster approval of investment projects, the analysts said. Slower global demand for exports and domestic policy tightening are pushing China’s projected growth this year to the weakest since 1999.

“There is no doubt that the level of activity growth in April is significantly below the government’s comfort zone,” Beijing-based Song and Hong Kong-based Buchanan said. “It is clear that there is a consensus within the government that policy should be loosened further.”

The second-quarter forecast by Goldman Sachs matches the median estimate of 21 economists surveyed by Bloomberg News May 14-15, while the full-year median projection of 22 analysts was 8.2 percent.

Even with the forecast reduction, the analysts said their outlook for the world’s second-largest economy “reflects an acceleration of infrastructure spending and bank lending starting rapidly” as well as additional fiscal spending.

The central bank may cut benchmark interest rates twice, each time by 25 basis points, in the second half when consumer-price inflation slows to 3 percent or below, Song and Buchanan said. They left their full-year estimate of consumer-price gains unchanged at 3.1 percent.

To contact Bloomberg News staff for this story: Scott Lanman in Beijing at slanman@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net

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