Goldman, Morgan Stanley cut China growth forecasts as coronavirus fears


LONDON, Aug 9 - Wall Street banks Goldman Sachs JPMorgan and Morgan Stanley all cut their China growth forecasts on Monday after export growth slowed unexpectedly and on concerns that the resurgent coronavirus could crimp economic activity.

China export data released over the weekend increased forecasts, while figures on Monday showed inflation growing in the country's factory sector, potentially adding extra strains.

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

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

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

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

On the monetary policy front, JPMorgan said that the People's Bank of China would be affected in the fourth quarter by 5 basis points while it would deliver two more 50 basis point cuts to banks' reserve requirements the first in October and another in January.

It already provided one cut last month.

Morgan Stanley said it anticipated 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 delay in exports in 2 H and an ongoing slowdown in domestic demand amid Delta resurgence mean policy support could ramp up in coming months, the Bank said.