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Morgan Stanley to UBS Cut China Growth Forecasts After May Data

June 13, 2013

Morgan Stanley joined banks from UBS AG and Barclays Plc in cutting estimates for China’s economic growth after weaker expansion in exports, industrial output and new lending last month.

Morgan Stanley lowered its estimate for an increase in 2013 gross domestic product to 7.6 percent from 8.2 percent, economists led by Hong Kong-based Helen Qiao wrote in a note today. UBS and Royal Bank of Scotland Group Plc this week pared their forecasts to 7.5 percent while Barclays now sees 7.4 percent, which would be the slowest pace since 1990.

President Xi Jinping and Premier Li Keqiang have signaled a tolerance for slower expansion since taking office in March as they reduce the state’s role in the economy, give market forces more power and curb pollution. Their room to loosen policies is limited by rising financial risks, with Moody’s Investors Service warning today that some local authorities who have taken on too much debt may need to be bailed out.

“Policy makers see such short-term pain as the necessary price to pay for reforms and growth sustainability in the long term,” Morgan Stanley economists wrote in today’s report. The lower growth forecasts reflect “the new government’s less pro-growth policy stance,” they said.

The bank also cut its estimate for 2014 expansion to 7.6 percent from a previous 7.9 percent and pared its inflation forecast for this year to 2.6 percent from 3.5 percent.

Bearish Outlook

The World Bank lowered its projection for global growth this year to 2.2 percent from 2.4 percent after a larger-than-forecast slowdown in emerging markets including China, according to a report released yesterday in Washington.

“While we remain cautious about growth, we are not getting bearish,” Chang Jian, a Hong Kong-based economist at Barclays wrote in a June 9 note that cut the 2013 growth estimate from 7.9 percent. “Fundamentally China is going through a transition period and pain is unavoidable as the economy experiences a deflating of the global demand and domestic investment bubble, while searching for new growth drivers.”

Australia & New Zealand Banking Group Ltd. (ANZ) lowered its 2013 China estimate to 7.6 percent from 7.8 percent on June 9, the same day the National Bureau of Statistics reported May economic data that showed industrial production growth slowed to 9.2 percent from a year earlier, inflation eased to 2.1 percent and factory-gate prices fell for a 15th month.

Also on June 9, People’s Bank of China data showed new local-currency lending in May was 667.4 billion yuan ($109 billion), down from 793.2 billion yuan a year earlier. The previous day, figures from the customs administration showed export growth slumped to a 10-month low of 1 percent and imports unexpectedly fell after a crackdown on fake trade invoices used to circumvent capital controls.

Structural Challenges

ANZ said a quarter percentage-point cut in interest rates may be imminent while Haitong International Securities Co. sees two or three cuts in banks’ reserve requirements, one rate cut and approval of more infrastructure projects in the next several months.

Daiwa Capital Markets, which lowered its 2013 growth estimate to 7.8 percent from 8.1 percent and its 2014 forecast to 7.5 percent from 7.7 percent on June 10, said the government will not start any stimulus measures as it is “satisfied with the pace of economic growth and willing to pursue economic reforms to solve structural challenges.”

To contact Bloomberg News staff for this story: Xin Zhou in Beijing at

To contact the editor responsible for this story: Paul Panckhurst at

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