Recovery hopes dashed

The release of China’s weak Q1 GDP data jolted markets worldwide. Consensus forecasts for 2013 growth have been lowered. The prospect of significant policy tightening, including benchmark rate hikes, has faded. But perhaps the biggest impact has been on expectations for growth over the medium term. We have long argued that hopes for a substantial rebound would be dashed and that annual growth would remain at 8% or lower. As recently as a year ago, that was a starkly non-consensus call. For example, before the April 2012 round of forecast revisions, the IMF was expecting growth to bounce back to 9.5% in 2013 and remain that strong until at least 2016. It is a mark of how far sentiment has shifted that this mainstream view from little more than a year ago would be on the fringe today.