China’s economy will likely expand 6.5 per cent this year as authorities tolerate a further slowdown so they can focus on containing increasing financial risks, but a weakening yuan will complicate their policy choices, a Reuters poll shows.
The forecast would represent only a mild cooling from 2016's expected growth of 6.7 per cent, but would likely mark the seventh straight year of slower growth as China looks to reign in excessive debt and increasingly unproductive investment while boosting the consumer sector.
The 2017 growth forecast was unchanged from an October poll. China’s economy picked up towards the end of the year, supported by higher government spending and record bank lending, putting it on track to meet targets of 6.5 to 7 per cent growth.
Economists expect China’s economy likely grew by a steady 6.7 per cent in the fourth quarter of 2016, the same pace as in the previous three quarters, according to a Reuters poll. China will announce Q4 and 2016 GDP growth on Friday.
However, Beijing’s decision to double down on spending may come at a high price, as policymakers will have their hands full this year trying to defuse financial risks created by the explosive growth in debt.
Reinforced policy shift
China's lower growth target of about 6.5 per cent reinforces a policy shift from supporting growth to pushing reforms to contain debt and housing risks, policy sources said. Growth will likely weaken further to 6.2 per cent in 2018, the Reuters poll of 57 economists shows, as China deals with a debt ratio that will likely surpass 285 per cent of GDP this year, said Gene Frieda, global emerging markets strategist at asset management giant Pimco, in a note this week.
On a quarterly basis, China’s economy is expected to slow from 6.6 per cent growth in the first quarter of 2017 to 6.5 per cent in the second and third quarters, and then hit 6.4 per cent in the fourth quarter, the poll shows.
Analysts also expect annual inflation to average 2.2 per cent in 2017 and 2018, picking up slightly from an expected 2 percent in 2016. Sluggish demand is expected to keep consumer prices largely in check despite a big bump in producer prices in late 2016.
Reuters
