Goldman slashes China growth targets

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Goldman Sachs is the latest bank to slash its growth outlook for China as weak economic activity triggers fresh concerns of over slowing growth.

The U.S. bank on Wednesday lowered its third and fourth quarter growth forecasts to 7.1 percent from 7.3 and 7.2 percent, respectively. It expects growth to slow to 7.3 percent this year from 7.7 percent last year.

"August activity data posted a large downside surprise...risks are clearly skewed to the downside of these figures, particularly for Q3, given the sharp tightening in credit seen in July and August," the bank wrote in a report.

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Goldman also cut its 2015 growth estimate to 7.1 percent from 7.6 percent on expectations that the government will reduce its growth target next year in order to limit the accumulation of financial risks and reduce pressure for policy stimulus.

While China will benefit from stronger global demand spearheaded by the U.S., slower infrastructure and property investment will continue to weigh on growth, the bank said.

Sub 7-percent growth near

Goldmanexpects growth to decelerate to around 6.7 percent in 2016 and 2017 as potential growth - the rate of economic growth that is sustainable in the medium run without triggering inflationary pressures - slows.

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The deceleration in potential growth will be driven by slower growth in the labor force and capital stock - the level of productive capacity in an economy, it said.

"Key risks to these forecasts are the strength of external demand and the progress of domestic reforms (e.g., SOE reform, Hukou reform, and financial sector liberalization) that should boost China's productivity growth," the bank said.

"Recent news of easing in mortgage lending conditions represents a potential upside risk to housing activity and growth for 2015," it added, referring to Beijing's move to encourage big banks to step-up lending, especially to lower-income and first-time home buyers.

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Slower growth widely expected

Goldman's downgrade follows a spate of weaker-than-expected economic data for August thatprompted several other banks cut their gross domestic product forecasts.

Last week, Bank of America Merrill Lynch lowered its third and fourth quarter growth forecasts to 7.2 percent and 7.3 percent, both from 7.4 percent, respectively. It expects full year growth of 7.3 percent in 2014 and 7.2 percent in 2015.

Meantime, RBS downgraded its full year growth outlook to 7.2 percent from 7.6 percent.

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