Goldman Sachs economist sees another rebound in China

The top forecaster on China’s economy predicts a rebound this year, to which we at Asia Unhedged say, obviously.

Last year in March, when most economists were down on China, Goldman Sachs Group (GS) economist Song Yu declared growth had likely “troughed” and a rebound would follow. That was a pretty good guess, considering it came true. This year, the Beijing-based Song expects more of the same.

“Now it’s very similar to this time of last year in terms of having a combination of monetary, fiscal and administrative loosening,” said Song, according to Bloomberg, which ranks him the best overall forecaster of China’s economy for the past two years. “The data in recent years consistently show us one thing: If the Chinese government really, really wants to push up short-term growth, they can.”

The proof was in the pudding Sunday when the People’s Bank of China cut the benchmark interest rate for the third time in the past six months, on top of two reductions to banks’ reserve ratios and targeted liquidity injections. Song’s comments came before the central bank lowered the benchmark lending rate by 0.25 percentage point to 5.1% and the one-year deposit level to 2.25%.

In fact, on Monday Song told Bloomberg Television, “The pace of cutting has not been aggressive enough. Until very recently the real interest rate has actually gone up and that’s not helpful.”

Despite an unexpected drop in April exports, Song believes the economy will stage a second-quarter rebound on the back of an anticipated tailwind from external demand. Goldman expects U.S. growth will rebound this quarter in the same way it did in 2014, Song said.

On a quarter-on-quarter annualized basis, Song projects gross domestic product growth of 6.9% this quarter, and 6.8% for the year.  Premier Li Keqiang has a quarterly target of 7%, and 6.7% for the year.



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