Decelerating more than expected in the first eight months of 2015, gross domestic product (GDP) growth in the People’s Republic of China (PRC) is forecast to average 6.8% for the year. Recent growth moderation will likely be offset by a pickup in exports and consumption in the remainder of the year, says a new Asian Development Bank (ADB) report.
In an update of its flagship annual economic publication, Asian Development Outlook 2015, ADB trimmed its GDP growth forecast for PRC to 6.8% for 2015 and 6.7% in 2016. In its March report, it projected growth of 7.2% for 2015 and 7.0% for 2016. The revisions reflect growth setbacks due to decelerating investment growth and weak exports.
In addition to less favorable demographics and higher wage costs, the PRC’s adjustment to a new growth model that is based more on innovation, consumption, and services will bring with it more moderate growth,
said ADB Chief Economist Shang-Jin Wei.
As long as the country continues to pursue pro-market reforms, there is a good chance for the PRC to realize productivity gains and relatively strong future growth rates.
In its updated assessment, ADB noted that labor markets remained healthy, with 7.2 million new urban jobs created in the first half of 2015. Indicators for retail sales, energy, cement production and consumer confidence for July and August 2015 also point to no significant downward trend in growth going into the third quarter. Consumption remains robust, contributing 4.2 percentage points to GDP growth in the first half of 2015, while a recent uptick in money supply growth will also support the economy in the latter part of the year.
Housing sales remain strong, but the inventory overhang continues to weigh on real estate investment and, by extension, demand for construction materials and other inputs. Nevertheless, structural reforms including deregulation of services and improved financing conditions should help invigorate private investment going forward.
Government stimulatory actions including cuts in benchmark interest rates and regulatory reserve requirements, which have helped boost liquidity, are likely to continue aiding the economy, while at the same time headline inflation will remain subdued as global prices for food and other commodities remain depressed, the report said.
The key external downside risk to growth includes a further delay in the major industrial economies recovery, although the recent financing agreement between Greece and its creditors has helped ease some concerns about the euro area.
As to the recent stock price volatility, the report notes that equities account for only a small share of total household wealth with large household savings providing a buffer, and as a result, the impact on aggregate consumption and investment is likely to be limited.
ADB, based in Manila, is dedicated to reducing poverty in Asia and the Pacific through inclusive economic growth, environmentally sustainable growth, and regional integration. Established in 1966, it is owned by 67 members – 48 from the region. In 2014, ADB assistance totaled $22.9 billion, including cofinancing of $9.2 billion.
This article was first published by the Asian Development Bank (www.adb.org)