BEIJING: China’s economy will likely expand 6.5 percent 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 showed. The forecast would represent only a mild cooling from 2016’s expected growth of 6.7 percent, 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 forecast for 6.5 percent growth this year was unchanged from an October poll.
China’s economy picked up towards the end of last year, supported by higher government spending and record bank lending, putting it on track to meet the government’s target of 6.5-7 percent growth. Economists expect China’s economy likely grew by a steady 6.7 percent 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. But Beijing’s decision to double down on spending may have 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.
China will lower its 2017 economic growth target to around 6.5 percent, policy sources said, reinforcing a policy shift from supporting growth to pushing reforms to contain debt and housing risks. Growth will likely weaken further to 6.2 percent in 2018, the Reuters poll of 57 economists showed, as China deals with a debt ratio that will likely surpass 285 percent of GDP this year, Gene Frieda, global emerging markets strategist at asset management giant PIMCO, said in a note this week. On a quarterly basis, China’s economy is expected to slow from 6.6 percent growth in the first quarter of 2017 to 6.5 percent in the second and third quarters, and then hit 6.4 percent in the fourth quarter, the poll showed. Analysts also expect annual inflation to average 2.2 percent 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.
