HSBC downgraded China’s GDP forecast

HSBC holdings plc said in its latest research note that headwind due to sluggish external economy hit China stronger than previous expectations, therefore, the bank downgraded China’s Goss Domestic Product forecast for 2012 and 2013, and predicted the central government might release measures such as tax cut to beef up economic growth, as well as the central bank continues to loosen liquidity.

Senior economist Qu hongbin from HSBC points out in the note that deteriorating export date makes the bank to downgrade China’s GDP growth to 8.0 percent from its previous 8.4 percent forecast in this year, while 2013’s GDP expected to slow from 8.8 percent to 8.5 percent. With softening concern over the country’s domestic inflation rate, he further foresees that the central bank of China may slash the benchmark interest rate by another 25 basis points and cut up to 200 Bp in its reserve requirement ratio (RRR) within this year.

"We are confident further policy easing will lead to a recovery but the scale is likely to be more modest than expected” said in the note.

China’s Premier Wen Jiabao indicated recently that there are a slew of unfavorable factors to influence China’s stable economic operation and difficult to stabilize economic growth remains. Emphasized existing problems and plight amid China’s export and foreign trading, he explicitly points out to take measures to shore up stable growth of China’s export, a move to provide beneficial foundation for realizing annual target of economic and social development.

HSBC also mentioned China may control the domestic inflation rate under 3 percent in the coming months of this year, despite of the fact soaring global grain prices influenced could push up the pork prices. Policy makers, therefore, has no concern over inflation rate and the bank predicted 25 Bp interest rate cut within the year.