The People's Bank of China has lowered its full-year GDP growth forecast to 7 percent from the previous estimate of 7.1 percent issued in December as first-half economic momentum turned out to be weaker than expected.

"But we have reason to expect some modest recovery in sequential growth in the second half," says the updated mid-year report by the central bank.

The PBOC also slashed its forecast for consumer price inflation to 1.4 percent from 2.2 percent previously. And it cut a number of other key forecasts:

Exports: To 2.5 percent growth from 6.9 percent previously.

Imports: To a 4.2 percent contraction from growth of 5.1 percent.

Fixed-asset investment: To a rise of 12.6 percent from 12.8 percent previously.

Retail sales: To growth of 10.7 percent from 12.2 percent.

Overall economic conditions are worsening because of a faster-than-expected slowdown of exports and real estate investment, with the lowest indicators since the global financial crisis in 2008, Ma Jun, the central bank's chief economist, wrote in the report.

"Recently, the nonperforming loan ratio has been rising and commercial banks have become more cautious about lending, especially to producers of coal, steel, construction materials and companies involved in export-oriented manufacturing and real estate," Ma said.

The PBOC did, however, forecast that the positive effects of already-announced policies will become evident starting in the third quarter.

Growth of China's industrial output continued to pick up in May after hitting a six-year low in March and rebounding in April, pointing to tentative signs of improvement for the world's second largest economy.

Industrial output grew 6.1 percent year on year in May, up from the 5.9-percent growth in April and 5.6 percent in March, the lowest monthly level since December of 2008, the National Bureau of Statistics announced on June 11.

The figure was released by the NBS with other major economic indicators for May and the first five months.

Credit ratings agency Moody's Investors Service Inc released a report on June 10, saying that the number of companies in China in financial distress will rise as slower domestic economic growth and the government's reform agenda, intended to allow markets to play a "decisive" role, expose overstretched balance sheets in the corporate sector.

"But policy easing and government support will prevent rising corporate distress from escalating to a level that would cause systemic risk to the onshore and offshore markets," it said.

It added: "Room is also available for a further loosening of monetary policy should macroeconomic conditions continue to deteriorate, given that real lending rates and the reserve requirement ratio remain high."

Compared with other emerging markets, China has a more stable economic foundation, so the expected move by the US Federal Reserve to raise interest rates will have merely a limited impact on the country's financial system, the PBOC report said.

However, capital outflows and currency depreciation in other emerging economies may cut China's exports, it said.

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