RBS slashes China '09 GDP growth forecast to 5%

(Agencies)
Updated: 2008-12-19 18:54

BEIJING -- Royal Bank of Scotland on Friday slashed its forecast for China's 2009 gross domestic product growth to 5 percent, from 8 percent.

Exceptionally weak activity data for November has prompted a number of investment banks, including Goldman Sachs, to revise down their China growth estimates.

But the RBS forecast, based on expected sharp drops in household consumption, residential investment and exports, is the lowest of the major banks.

Forecasts in a Reuters poll published last week centred on a growth rate of 8 percent. The economy expanded by 9 percent from a year earlier in the third quarter, compared with 11.9 percent in all of 2007.

"It is not a recession, but it will feel like one to the average citizen and will feel like a depression to the 100 million or so migrant workers, many of whom are out of a job and stranded far from home," economists Ben Simpfendorfer and John Richards said in a note to clients.

"Social tensions are likely to be on the rise."

Beijing would be alarmed about any slowdown of that degree, as it would not enable the economy to produce enough jobs to soak up the millions of people seeking to enter the workforce each year, potentially feeding into social unrest.

The government has launched a series of measures to counter the slowdown -- which has seen annual export growth turn negative and factory output growth slow to the weakest pace on record -- including a massive stimulus package, repeated interest rate cuts and measures to support the property market.

Simpfendorfer and Richards said they assumed GDP growth would fall to as low as 4 percent from a year earlier in the first half of next year, before recovering in the second half as a result of fiscal easing and the base effect.

International Monetary Fund Managing Director Dominique Strauss-Kahn said earlier this week that the IMF could cut its 2009 China growth forecast to around 5 percent in its next revision, from 8.5 percent.