Goldman sets GDP growth forecast at 6.5%

Updated 2018-02-08 11:17:01 China Daily

The Chinese mainland's accelerated structural reform and efforts to cut debt levels might lead to a mild slowdown in gross domestic product expansion this year, investment bank Goldman Sachs said, setting its growth forecast for the year at 6.5 percent.

Andrew Tilton, managing director of global investment research at Goldman Sachs, said the mainland had performed well last year. A credit-growth slowdown normally held the economy back, but GDP continued to grow despite the deleveraging.

China's GDP grew 6.9 percent last year, up from 6.7 percent in 2016, the National Bureau of Statistics said.

A pickup in exports amid the global recovery last year, which did not involve much leverage, accounted for some of the rise, Tilton reflected. Goldman also saw a fiscal expansion, including local-government spending. The bank expects policy tightening in some areas to curb GDP growth.

"Regulations in housing and anti-pollution measures are likely to stay in place if not tighten; where we do think will have more policy tightening is in shadow banking. There is also a possibility that policy makers are trying to reign in the borrowing and spending activities of local governments," Tilton said.

The Finance Ministry last year cracked down on public-private partnership projects, a heavily promoted model since 2014 that channels private money into public infrastructure projects. The model was overhauled when regulators found local governments had widely abused projects as "disguised borrowing".

Consumer spending will continue to be the driving force of the country's economy, as the mainland shifts from an investment-led to consumption-led economy, Goldman said.

A strong labor market, expanding consumer credit and big household savings augur well for consumer spending, the bank said.

Goldman had an above-consensus forecast of 4.1 percent growth for global GDP this year, expecting broad-based momentum across advanced and emerging markets aided by relatively easy financial conditions and benign inflation.

The bank estimated the United States Federal Reserve would raise interest rates four times this year but chances that the mainland will follow in their steps are slim, Tilton said.

"If the inflation surprised on the upside we might see a rate hike, but having said that this is not what we have expected, policy has been tightening in many other ways that would all weigh on growth. They don't need to raise the rates further," he said.

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