MercoPress. South Atlantic News Agency

Goldman Sachs predicts US recession and China slowdown

Goldman Sachs Group Inc., one of the world's leading investment banking and investment management firms lowered its forecast for China's 2008 GDP growth to 10% from 10.3%, due to an expected 2008 recession in the U.S.

Hong Liang, the U.S. investment bank's chief China economist, said on Monday that, "given the significant contribution to growth from net exports, a meaningful slowdown in global demand, triggered by a U.S. recession, would surely have a visible impact on China's growth and corporate profitability" Hong Liang, the investment bank's chief China economist, said in a note issued on Monday. Goldman now expects net exports to contribute 1.6 percentage points to China's 2008 GDP growth instead of 1.8 points. It estimates that net exports accounted for 3.4 percentage points, or almost a third, of projected 2007 GDP growth of 10.4%. The China forecast follows on last week's Goldman's report on the US economy "which may already be in recession" and anticipated the central bank will respond by slashing interest rates. "Recession has now arrived, or will very shortly" Goldman's chief U.S. economist, Jan Hatzius, wrote in a note to clients. The downturn will last two or three quarters and be "relatively mild by historical standards," he wrote. Goldman Sachs' forecast said the jump in the jobless rate in December tipped the balance in favor of an economic contraction by signaling that the longest consumer-spending expansion on record would end this year. The Fed will cushion the downturn by lowering its target rate by half a percentage point more then previously forecast, Hatzius said. After stalling this quarter, the world's largest economy will shrink at a 1% pace in the following six months as the housing slump and lending restrictions make it difficult for consumers to obtain credit, according to the forecast. The expansion will resume in the last three months of the year. For all of 2008, Goldman economists forecast growth of 0.8%, matching the increase during the last recession in 2001. Consumer spending, which accounts for more than two-thirds of the economy, will be little-changed in the first three months of the year and then contract the next two quarters, according to the new forecast.