ADB downgrades China’s GDP forecast

An update of ADB’s Asian Development Outlook 2012 lowers PRC’s 2012 forecast to 7.7% from the projected 8.5%.

Though the Asian Development Bank has cut its current gross domestic product (GDP) growth estimate for the People’s Republic of China by almost 1 percentage point, indicating that “downside risks to the Chinese economy are likely to intensify in the short run given bleak global demand and the uncertain outlook for China’s largest trading partners.

Its 2013 forecast is also gone down to 8.1% from 8.7%, said the report. Moreover, inflation remains subdued for the rest of 2012, giving scope for a further easing of monetary policy. ADB is forecasting inflation of 3.2% for 2012, with the rate ticking up to 3.5% in 2013.

Subdued exports, weaker investment, softer consumption and a slump in industrial output dragged heavily on the economy in the first half of 2012, with GDP growth easing to 7.8% from 9.6% over the same period a year earlier.

ADB’s chief economist Changyong Rhee said the slump in demand from worldwide, particularly in Europe, will remain a serious drag on growth in the near term. “The government has the means to cushion the economy from global turmoil, however.

Its strong fiscal position, receding inflation and expansionary policy measures should ensure a soft economic landing, but it needs to expedite its effort to diversify the source of growth and strengthen structural reforms for inclusive growth.”

In a related development, the Chinese government has responded with a series of measures to stimulate its economic activity, including additional state spending, tax cuts and incentives, and advancing infrastructure projects.

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