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Key think tank scales back outlook for 2014

Updated: 2014-10-19 12:56
By Zheng Yangpeng (China Daily Europe)

CASS cuts GDP forecast to 7.3%, citing the impact of downturn in property sector

The Chinese Academy of Social Sciences on Oct 10 lowered its forecast for this year's GDP growth to 7.3 percent, one of many institutions that are paring back their economic expansion outlooks for the nation.

The CASS cut its forecast from 7.5 percent to 7.4 percent just a few months ago. The latest forecast could be instrumental in decisions taken by the Central Economic Work Conference in December, domestic media reports says.

The CASS says in its quarterly analysis that the latest revision was prompted by the cooling real estate sector and its impact on investment, a pillar of the economy.

The growth in real estate investment, roughly accounting for one-quarter of China's investment, fell to a record low of 13.2 percent for the first eight months of the year, according to the National Bureau of Statistics. As a result, fixed-asset investment growth slumped to a 14-year low of 16.5 percent in the same period.

"Although the government has shored up investment in infrastructure, which we expect to grow more than 20 percent for the full year, that cannot offset the drag of property investment", the report says.

Commenting on the other two engines of GDP growth, the report estimated that exports would not significantly improve because of slack external demand. Consumption would grow steadily, the report says.

CASS vice-President Li Yang says the most volatile factor in growth would be investment. Although investment growth had slowed, that also meant that wasteful investment could be constrained and overcapacity could be alleviated, he says.

Economic growth "has entered the 'new normal', which is a good thing judging by the sustainability of the economic growth", he says.

The CASS' latest assessment added to signs that the central government is increasingly comfortable with a more moderate growth level. During a State Council executive meeting on Oct 8, Premier Li Keqiang told the cabinet that the economy is "running within a proper range".

He said: "The outside world has a misunderstanding that 7.5 percent growth is our lowest acceptable line. But I've said that 'a bit higher or lower than that is OK', as long as employment and incomes are growing."

The central bank says it will maintain its "steady" monetary policy, adding various monetary tools to maintain adequate liquidity. Analysts say the comment was a signal that the bank will not resort to cutting interest rates or reserve requirement ratios as many investors had hoped.

These signs have also increased the possibility that China could tolerate a lower growth rate of 7.4 percent or 7.3 percent for this year, and next year's target could be set lower, analysts say.

Weak data for July and August have already prompted various financial institutions to lower their forecasts for the third quarter. The consensus among chief economists at 20 institutions stands at 7.2 percent, according to a poll by China Business News.

That would be the lowest quarterly growth since the first quarter of 2009.

On Oct 6, the World Bank lowered its growth forecast for China to 7.4 percent this year and to 7.2 percent in 2015.

The International Monetary Fund retains its 2014 economic growth outlook for China at 7.4 percent, but it says that it expects GDP growth to fall to 7 percent next year because of slow implementation of reforms and policies to limit local government debt and investment credits.

Gary Hufbauer, a senior fellow at the Peterson Institute for International Economics in Washington, says he thought the IMF report was too optimistic.

"I would tend to go for the downside. Exports are not doing particularly well," he says.

 Key think tank scales back outlook for 2014

A worker in Lianyungang, Jiangsu province, makes toys for export to the US and European markets ahead of the Christmas season.  Si Wei / China Daily


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