Thursday, October 14, 2010

China economy to slow in 2011, inflation under control

BEIJING: China's economic growth in 2011 will probably be marginally weaker than economists had expected three months ago as the government maintains its curbs on credit growth, according to a Reuters poll on Thursday, Oct 14.

The normalisation of monetary policy will meet its objective in keeping a lid inflation, the poll also showed.

The median forecast of 27 analysts is for China's gross domestic product to grow 10 percent in 2010 -- the same as in the previous poll published on July 14.

They expect economic growth to slow to 8.9 percent in 2011. That compared to 9.0 percent in the previous quarterly poll.

The slowdown in China's economy, which is set to overtake Japan as the world's second biggest, has been well anticipated as the government steers extra-loose policy back to normal after a lending spree unleashed last year to counter the global crisis.

Beijing set a target of 7.5 trillion yuan ($1.1 trillion) for new loans this year, down from a record 9.6 trillion yuan in 2009.

The People's Bank of China (PBoC) has avoided sharp tightening against the backdrop of a tepid global recovery, even while trying to mop up excess liquidity.

Concern over renewed capital inflows, which could fuel asset bubbles, was seen as a key factor behind a surprise rise this week in reserve requirements for big banks.

"The economy is in a sweet spot -- not too hot and not cold," said Charlie Lay, economist at Forecast PTE in Singapore.

"The outlook in 2011 depends on the global economy. If global growth picks up a bit more, it should help China's external sector," he added.

According to the poll, the economy will bottom out in the first quarter of 2011, when the year-on-year pace of expansion is seen slowing to 8.2 percent.

Economists expected that China's consumer price inflation would average 3 percent in 2010 and the same in 2011, bang in line with a target that the government set for this year.

In the previous poll in July, analysts expected consumer prices to rise 3.4 percent in 2010 and 3.1 percent in 2011.

The benign inflation outlook could point to an extended period of stable interest rates in China, helping it shore up growth at a time when a big question mark still hangs over external demand.

A Reuters poll last month forecast that the central bank would not raise deposit and lending rates until the second quarter of 2011.

"Right now, China's economy is on a path towards recovery, but there are many uncertainties in the United States and Europe," said Jinny Yan, an economist with Standard Chartered Bank.

The survey also showed that China's trade surplus, a nearly constant source of friction with the United States and the European Union, could be gradually declining.

The median forecast is for the surplus to shrink to $180 billion this year and $174 billion in 2011 from $196 billion in 2009.

The surplus peaked at $295.5 billion in 2008. If the forecasts come true, Beijing will be able to point to the decline as proof that its efforts to power domestic demand and smooth out global imbalances are gaining traction. - Reuters


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