HSBC downgrades China growth forecast for 2015 to 7.1%

HONG KONG – HSBC has downgraded its 2015 growth forecast for China from 7.3% to 7.1%. It says the external demand outlook has deteriorated, an on that basis has cuts its export growth forecast for China in 2015 to 4.2% to 7.1%.

“Export growth has been weaker than expected so far in 205, a reflection of softer external demand and the RMB’s strength in relation to its trade partners,” HSBC says. “Weaker exports will weigh on corporate spending and sentiment.”

HSBC says policy easing is behind the curve in China, further cutting into investment growth. The bank now expets another 50 basis points policy rate cut (it forecast 25 basis points earlier) and a 250 basis points cut in the reserve ratio (100 basis points forecast previously).

HSBC says that five months into 2015, economic activity remains sluggish. “Much of the weakness has been anticipated as it stems from a prolonged industrial and manufacturing slowdown.

“One factor that does stand out, however, is external demand softness. After a volatile performance due to Chinese New Year distortions, export growth in April fell by 6% while imports contracted 16%. Year-to-date, exports grew by only 2% year-on-year.”

HSBC says poor export numbers are not unique to China. “Export growth across the region has decelerated sharply in the first four
months of 2015, with leading indicators suggesting little sign of a rebound in the months ahead,” it says.

“This may reflect the softness of US growth this year (our US economists have recently cut their 2015 GDP growth
forecast to 2.5% from 2.9%.” www.hsbc.com (ATI).