OECD Hacks At Its China Growth Forecast

If the Organization for Economic Co-operation and Development (OECD) has pared its growth forecast for the world economy, then it has a taken a hatchet to that for China. In the latest update to its economic outlook, the OECD now says it expects China’s GDP to grow at 7.8% this year, no faster than in 2012. It has pushed back its forecast for any pick-up in the pace until next year, when it forecasts the economy will expand by 8.4%. In March, it had forecast 8.5% GDP growth this year and 8.9% next.

The OECD forecast is a sharper correction than that just made by the International Monetary Fund, which cut its forecast for this year to 7.75% growth from 8%, citing the overall weakness of the world economy and the effect that was having on China’s exports. The OECD points the finger more at a slowdown in capital formation in the first quarter and swings in inventories. Given China’s own recently published monthly economic indicators the downward revisions by both multilateral institutions is scarcely a surprise, though the scale of the OECD’s cut did raise an eyebrow as it is usually the most bullish on China.

The OECD sees scope for more relaxed fiscal and monetary policy in the second half of the year to stimulate growth as long as inflation stays low, but notes that disinflationary pressures have recently abated. It also recognizes the risks lurking in the property market and in shadow banking. Those limit policymakers’ freedom of action. The organization also calls for a detailed timetable to implement structural economic reforms, notably interest rate deregulation, increased labour market flexibility and land reform.

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