ADB cuts growth forecast for China
Print Edition
THE Asian Development Bank has revised down its forecast for China’s 2016 economic growth to 6.5 percent due to weak external demand and slowing investment.
In its Asian Development Outlook 2016, which was published yesterday, it predicted growth in the world’s second-largest economy would slow further in 2017, to 6.3 percent, due to the difficult trading conditions, though their impact would be mitigated by an increase in consumption and ongoing government spending.
“Weak external demand and excess capacity in some sectors, on top of a shrinking labor force and rising wages, continue to induce a gradual decline in China’s growth rate,” said ADB’s Chief Economist Shang-Jin Wei.
“Supply-side reforms, including providing labor market flexibility, are needed to improve the economy’s resilience to negative shocks and raise its potential growth,” he said.
In September, the ADB forecast 6.7 percent growth for China in 2016.
The ADB said: “Moving forward, the sharp slowdown in investment, particularly in real estate and capital intensive industries, will remain a drag on the economy ... But this will be partly offset by further government spending on infrastructure and green investment. Consumption growth will remain robust.”
The government has set a target of between 6.5 and 7 percent for this year, after targeting “about 7 percent” in 2015.
“China faces increasing downward pressure due to sluggish global demand and embedded problems during economic restructuring,” Premier Li Keqiang said earlier this month, though he added there are “more hopes than difficulties.”
“As long as the country sticks to the course of reform and opening up, we are confident of sustaining growth momentum and preventing the so-called hard landing,” he said.
The ADB report said the key risks include “weakening global demand, further volatility in financial markets, and a loss of confidence given uncertainties about exchange rate policy and expectations of further depreciation of the yuan.”
It added: “Inflation is set to rise on further price deregulation and an expected pickup in commodity prices from the current lows. But the rate will still remain under the government ceiling of 3 percent.”
Economic growth is expected to slow across much of developing Asia, the report said, adding that the region is likely to see expansion of 5.7 percent this year and next, down from 5.9 percent last year.
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