One day after Christine Lagarde remarked that the International Monetary Fund may cut its global 2013 GDP forecast below its current 3.3%, Citigroup has cut its China forecast to 7.4%. The action likely is due in part to poor PMI readings and turmoil within the nation’s financial system. Whatever the trigger, the People’s Republic is no longer an engine that produces double-digit improvements each year.
Other analysts have chopped China’s GDP improvement this year to 6.0%. Such a low number would help drag down the global economy because it is the second largest by gross domestic product. The European Union, mired in a recession, has, as a region, a larger GDP than the United States, and it has been a boat anchor on the global economy for years. Although it appears that the world will not enter another recession, it may be close.
Citigroup on Monday cut its economic growth forecasts for China, citing downside risks to growth from “policy missteps.” The brokerage cut China’s gross domestic product growth to 7.4% from 7.6% in 2013, and to 7.1% from 7.3% in 2014. “The recent episode in the interbank market highlights the lack of communication with the market and possibly coordination between government agencies,” they said. However, the revised forecasts are based on a conservative assumption of global recovery, and therefore, “there can be upward surprises,” Citi added
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