ADB upgrades China growth forecast

The Asian Development Bank (ADB) slightly upgraded its forecast for China's annual economic growth on Tuesday, citing stronger-than-expected performance in the first half of 2016 and possible stimulus measures.

The ADB forecast that China's economy will grow 6.6 percent in 2016, up from its March projection of 6.5 percent, with 2017 growth estimated at 6.4 percent rather than the previous estimate of 6.3 percent.

"The economy is on track to achieve the government's annual average growth target of 6.5-7 percent," said ADB deputy chief economist Juzhong Zhuang in a statement.

The continued implementation of structural reforms should help China overcome risks, including weak export demand, falling manufacturing investment and the risk of asset price bubbles, Zhuang said.

The first-half performance for 2016 was supported by increased government infrastructure spending, strong retail spending and an accommodative monetary policy, the ADB said.

Services expanded their share of GDP by 1.8 percentage points in the first half from a year earlier, an indication of China's continued economic restructuring, it said.

However, the bank saw growth in other sectors, including industry and exports, remain under pressure, while growth in real disposable income slowed.

It predicted investment growth will weaken further, with credit growth slowing and spending on manufacturing remaining subdued, due to ongoing rebalancing of the economy and soft global demand.

In response, the government will likely take further stimulus measures to boost infrastructure, the ADB said.

Fiscal policy measures offer more scope for stimulus than monetary policy, given relatively low levels of central government debt and risks from easy credit, the bank suggested.

It noted that authorities must tread carefully when stimulating the economy to prevent too rapid credit expansions and real estate price bubbles, which could pose risks to the quality of bank assets.

The ADB forecast that the inflation rate in 2016 will move up to 2 percent from 1.7 percent projected in March amid ongoing price deregulation and rising service costs.

China's economy grew 6.7 percent year on year in the second quarter of this year, stable from the first quarter and slightly faster than expectations.

Source : XINHUA