China's GDP growth forecast inches down to 8%

Recovery isn't as much as expected.

Nomura revised down its forecast for Q4 2012 GDP growth to 8.0% from 8.4% and fine-tuned its 2013 quarterly forecasts mainly to reflect a base effect due to our Q4 revision. China's economy continued to recover in Q4, but not by as much as the firm had expected.

The December PMI surprised on the downside (December and November: 50.6; Consensus and Nomura: 51.0), which suggests that the recovery may be rather moderate despite rapid credit expansion in the shadow banking sector and a significant rise in infrastructure investment.

Here's more from Nomura:

This implies that the recovery is being driven mostly by monetary and fiscal policy easing. Exports remain lacklustre. Once the momentum of policy easing slows, growth may trend down again.

That said, we maintain our below-consensus 2013 full-year forecast of 7.7% (Consensus: 8.1%; Figures 2 and 3). We expect growth to average 8.1% y-o-y in H1 2013, similar to the consensus, but the main difference between our view and consensus lies in H2.

We expect growth to slow to 7.3% y-o-y in H2 while the consensus expects the recovery to be sustained at around 8%. We believe policy will turn gradually from the current very loose stance to a more cautious one. Specifically, we expect the year-on- year growth rate of total social financing to slow to 20-30% in H1 (from 51% in H2 2012) as the government tightens regulations on shadow banking activity.

In H2 2013 we believe the government will hike interest rates twice as inflation concerns return. We revise down our full-year 2013 CPI forecast to 3.5% from 4.2%, but maintain our view that it will rise in H2 to above the government target of 3.5%.