Wall Street Investment Banks Cut China Growth Forecasts

Chinese trade data released over the weekend undershot forecasts, while figures out on Monday showed inflation rising in the country’s factory sector, potentially adding extra strains.

JPMorgan reduced its quarter-on-quarter growth estimate for the third three months of the year to 2.0% from 4.3%, and trimmed its full-year forecast to 8.9% from 9.1%.

Morgan Stanley lowered its quarterly forecast to 1.6%, while Goldman cut its estimate to 2.3% from 5.8% and to 8.3% versus 8.6% for the full year.

“Recent developments point at further downside risks to already soft 3Q growth forecasts, related to the spread of the Delta variant, a series of regulatory changes in new economy sectors, and erosion of market confidence,” JPMorgan’s analysts said.

Both JPMorgan and Morgan Stanley also predicted Chinese authorities would respond with support measures.

On the monetary policy front, JPMorgan said the People’s Bank of China’s main policy rates were likely to be trimmed by 5 basis points in the fourth quarter, while it would deliver two more 50 basis point cuts to banks’ reserve requirements (RRR), the first in October and another in January.

It has already provided one cut last month.

Morgan Stanley said it expected one 50 bps RRR cut before the end of the year and that government bond issuance could accelerate in coming months to support infrastructure investment.

“A mild deceleration in exports in 2H and an ongoing slowdown in domestic demand amid Delta resurgence mean policy support could ramp up in coming months,” the bank said.

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Marc JonesEditing by David Goodman and David Holmes)