Bank cuts outlook for China's economy

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Deutsche Bank has revised downward its projection for China's gross domestic product to 8.9 percent this year because exports are likely to shrink amid a slowing economy in the United States and the European Union.

The German bank cut its previous forecast of 9.1 percent annual growth in China's GDP on grounds that the US and EU economies may slow to 1.4 percent this year.

For 2012, it forecast China's GDP growth to slow to 8.3 percent from a previous estimate of 8.6 percent.

United States investment bank Morgan Stanley also cut its 2012 growth forecast for China's GDP to 8.7 percent from 9 percent previously. But the US bank kept its forecast at 9 percent this year for China which may use its fiscal policies to encourage large-scale construction projects and domestic consumption to power its economy, according to its note released last week.

Deutsche Bank said it downgraded its forecast to reflect the hard blow to Chinese exports when its two largest trade partners grapple with slower growth, the lender's Hong Kong office said in a recent strategy update.

"In the near term, the single most important shock to the Chinese economy will be the likely slowdown or even recession in the EU and US," the bank said. "China's domestic issues, including inflation and macro policies, have become far less important in the coming quarters."

If growth in the West slows to 1.4 percent over the next 12 months, China's economy will slow to 8.6 percent from July to June 2012, the Frankfurt-based bank said.

If there's a mild recession, which means zero growth in the EU and the US, China's GDP may further slow to 7.9 percent in the next 12 months, while its growth may slump to 7 percent when the two regions decline 3 percent, the worst scenario the bank says can be described as a deep recession.

China's GDP grew at an annual 9.5 percent from April to June and 9.6 percent for the first half from a year ago.

But the German bank warned that exports, one of China's three biggest economic pillars, will be the worst hit. In the worst case of a deep recession, exports of the world's second largest economy will slump 15.6 percent in the next 12 months.

Exports make up nearly 70 percent of China's economy.