China’s economic growth is likely to accelerate for the first time in seven quarters after banks’ reserve requirements were cut, buoying global expansion threatened by Greece’s possible exit from the euro.

Third-quarter growth will rebound to 8.3 percent from 7.9 percent this quarter, according to the median estimate of 21 economists surveyed by Bloomberg News. Analysts forecast a further reduction of 100 basis points in reserve ratios this year, while a majority of respondents expect benchmark lending and deposit rates to be unchanged.

The forecasts reflect optimism that the ruling Communist Party has enough monetary and fiscal firepower to support the world’s second-biggest economy as leaders prepare for a once-a- decade power handover later this year. Even with the pickup next quarter, annual growth is forecast at a 13-year low after reports showed April industrial production and trade grew less than forecast and renewed European debt turmoil roiled markets.

“The recent spate of poor data should convince the authorities to take additional measures to prevent a further slowdown in the run-up to the Party Congress later this year,” said Ding Shuang, senior China economist at Citigroup Inc. in Hong Kong, who previously worked for the International Monetary Fund and China’s central bank.

Authorities on May 12 cut the reserve ratio for the third time in six months following two days of weaker-than-forecast economic data. The government tools to boost expansion include lowering reserve requirements, giving banks more leeway on their own to reduce lending costs, increasing fiscal stimulus and relaxing deposit-to-loan ratio rules, said economists including Ding.

Lower Lending Rates

“There is room for lending rates to come down without a cut of the benchmark rate,” Ding said.

The Communist Party is scheduled to hand power to a new generation of officials later this year in the aftermath of the ouster of Chongqing party boss Bo Xilai, which triggered the deepest political tensions since 1989.

Gross domestic product will probably expand 8.2 percent this year, according to the median forecast of 22 economists in the survey conducted May 14-15. That would be the slowest pace since 7.6 percent in 1999, following 9.2 percent in 2011.

Citigroup, JPMorgan Chase & Co., Bank of America Corp. and UBS AG were among banks to pare their forecasts for China’s expansion following last week’s data, which included the weakest industrial production growth in three years.

‘We Were Wrong’

Lu Ting, head of Greater China economics at Bank of America in Hong Kong, wrote to clients on May 11 that “we were wrong” about growth picking up in the second quarter as he reduced a forecast for the period to 7.6 percent from 8.5 percent. He predicts the expansion will be 8 percent in the third quarter. Industrial production will speed up this month or next because of policy easing, Lu said separately.

Not everyone is certain of a rebound. Joy Yang, chief economist for Greater China at Mirae Asset Securities (HK) Ltd. in Hong Kong, said further deceleration over the next two months is likely to trigger an interest-rate cut in July.

A rising risk of default by Greece will threaten additional turmoil, said Yang, who previously worked for the IMF.

Greece’s future in the euro has been thrown into doubt by a political standoff that has forced the president to call for new elections. German Finance Minister Wolfgang Schaeuble called the next vote a referendum on whether Greece exits the euro, a move that would leave lenders to its government, businesses and households unsure of recouping their money.

Japan Expansion

A report today showed Japan’s economy expanded faster than forecast in the first quarter, boosted by reconstruction spending that’s poised to fade just as a worsening in Europe’s crisis threatens to curtail export demand.

Singapore also reported an acceleration in growth last quarter, while warning about the risk of a disorderly European debt default. Malaysia’s central bank chief saw possible “catastrophic” consequences for Europe and South Korea said it has enough currency reserves to weather the storm.

International Monetary Fund Managing Director Christine Lagarde said a Greek exit from the euro area would be “extremely expensive” and hard.

There are some signs China’s downturn isn’t over. The benchmark Shanghai Composite Index fell 1.2 percent yesterday, the fourth straight drop, while yuan forwards had the biggest decline in two months, touching the weakest level this year.

Bank Loans

China’s four biggest banks, including China Construction Bank Corp., had almost zero net new lending in the two weeks ended May 13, Shanghai Securities News reported yesterday, citing unidentified people familiar with the matter. Yuan deposits at all Chinese banks fell by 465.6 billion yuan ($73.6 billion) in April from the prior month.

The latest reserve-ratio cut lowers the level to 20 percent for the largest banks, effective May 18. Eight of 20 economists forecast another reduction of 50 basis points this month or next; all see at least one by the end of the third quarter. Fourteen expect at least 100 basis points of additional cuts in 2012.

The more-vigorous pace of policy easing is pushing Chinese stocks into a bull market, Morgan Stanley said, as inflation is brought under control and the property market stabilizes. The “bear phase” for equities is over, Hong Kong-based analysts led by Jonathan Garner, chief Asia and emerging-market strategist, said in a report dated yesterday.

“With enhanced stimulus from Beijing, the economy should gradually recover in the second half,” said Li Wei, a Shanghai- based economist at Standard Chartered Plc, which has the most- aggressive reserve-ratio forecast at 150 basis points of additional cuts through September.

Source: Bloomberg News