China's central bank yesterday declared the economy to be on the road to recovery as Goldman Sachs joined a rush to upgrade growth forecasts on the back of aggressive government efforts to boost investment.
China's gross domestic product growth in the first quarter slowed to 6.1 per cent from a year earlier, the lowest rate on record, from 6.8 per cent in the final three months of 2008.
But Yi Gang, a Vice-Governor of the People's Bank of China, expressed confidence that expansion for the whole year would turn out to be close to the official target of eight per cent.
"In terms of quarter-on-quarter data, actually the fourth quarter of last year was the bottom of this cycle in terms of industrial output, electricity use, transportation and so on and so forth," Yi told the annual meeting of the International Swaps and Derivatives Association.
As well as rolling out a four trillion yuan (Dh2.15trn) two-year stimulus package, Beijing has successfully prompted state-owned banks to turn on the lending taps.
New loans in the first quarter totalled 4.58 trillion yuan after a record leap of 1.89 trillion yuan in March alone.
Yi said the surge in lending had helped to quash deflationary expectations and to stabilise China's property and equity markets. It had prompted companies to speed up restocking and, more importantly, it had helped restore confidence.
The upshot had been some positive signs of recovery.
"The economy is going forward as the stimulus package started working. And looking into the future, the second quarter and the remainder of this year will continue this recovery trend," said Yi.
Goldman Sachs yesterday became the latest bank to take a rosier view of prospects for the world's third-largest economy.
Goldman marked up its projection for GDP growth this year to 8.3 per cent from six per cent and stuck its neck out with a forecast for 2010 of 10.9 per cent, up from nine per cent.
"We acknowledge that policy stimulus has been more determined and persistent and the response from domestic demand has come in earlier and more strongly than we envisaged previously," Goldman economists Helen Qiao and Yu Song said in a report.
UBS, Royal Bank of Scotland and Barclays Capital all raised their forecasts after last Thursday's first-quarter GDP figures and accompanying data for March, which showed a marked pick-up in growth in industrial output and fixed-asset investment.
By contrast, Standard Chartered Bank yesterday reiterated its forecast of 6.8 per cent growth this year, while a senior official said the foundations of China's recovery were shaky.
Lou Qinjian, Deputy Minister of Industry and Information Technology, said overcapacity, including in the steel and auto sectors, was intensifying due to weak domestic and global demand.
"We cannot easily conclude that the economy has bottomed out. The industrial situation remains serious," he told a forum.
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