Downside risks to the forecast are rising leverage of the non-financial sector and uncertainty around housing prices
The World Bank on Tuesday raised its forecast for China’s economic growth in 2017 to 6.8 per cent from 6.7 per cent it projected in October, as personal consumption and foreign trade supported growth.
But the Washington-based lender kept its forecast for China’s 2018 and 2019 GDP growth unchanged at 6.4 per cent and 6.3 per cent, respectively, due to less accommodative monetary policy and the government’s effort to rein in credit and control debt.
The key downside risks to the forecast are the still rising leverage of the non-financial sector and uncertainty around housing prices.
“Despite the recent slowdown, credit continues to grow considerably faster than GDP. Outstanding bank loans reached 150 per cent of GDP in November 2017, up from 103 per cent at the end of 2007,” the World Bank said in its China Economic Update.
China’s economy grew at a faster than expected 6.9 per cent over the first nine months of the year, but Beijing’s campaign to reduce risks in the financial sector has pushed up borrowing costs, raising concerns GDP growth could take a hit next year.
But strong growth so far this year has given policymakers an opportunity to accelerate deleveraging, which is “likely to come at the cost of slower GDP growth in the near term but will improve China’s long-term economic prospects”, the report said.
External risks to China’s economy include the potential for more restrictive trade policies in advanced economies, and geopolitical tensions, the report said.