China’s central bank said the slowdown in growth in the world’s third-largest economy will likely stabilize, helping the nation avoid a slump during the second half of the year.
The economy’s fundamentals remain “good,” the People’s Bank of China said on its website today. China’s decreasing dependence on exports also means the European debt crisis is unlikely to have a large impact, the central bank said in its report for the second quarter.
President Hu Jintao and Premier Wen Jiabao pledged last week to maintain policy stability in the second half after measures to rein in property prices, inflation and bank lending eased second-quarter growth to 10.3 percent from 11.9 percent in the first. The slowdown is consistent with a “soft-landing” that leads the central bank to keep interest rates unchanged until the second quarter of 2011, UBS AG said today.
“Fears about things like inflation, also the extent that the European crisis will hurt China, have diminished,” said Mark Williams, senior China economist at Capital Economics Ltd. in London. “China policy makers have to their advantage that they have a lot of room to loosen policy if they need to, so I think there’s concrete reason to be fairly confident about how things are going to go over the next six to 12 months.”
The central bank is cautiously optimistic about the Chinese economy, according to today’s statement.
Inflation Risks
China needs to remain alert to inflation risks, it said. Rising labor costs, a return to increases in food prices and time-lags in the effects of monetary and credit expansions are reasons to be cautious, according to the statement.
Inflation, after easing to 2.9 percent in June, may climb above 3 percent in the next few months before falling at the end of this year, UBS economist Wang Tao wrote in a report distributed today. Economic growth in China may slow to between 8 percent and 8.5 percent in the fourth quarter, with a full- year expansion of between 9.5 percent and 10 percent, cooling to 8.7 percent in 2011, she wrote.
The Chinese government aims to limit full-year inflation to 3 percent. It also targets a maximum of 7.5 trillion yuan ($1.1 trillion) of new loans this year, down from a record 9.59 billion yuan in 2009.
At the current pace of lending, that goal will be met, the central bank said.
The global economy is continuing to improve and demand from recovering economies can compensate for a possible decline in exports to Europe, the central bank said. The proportion of Chinese exports going to the U.S., Japan and Europe has been falling as trade becomes more diversified, it said.
By Sophie Leung
Tags: bank of china, Chinese economy, debt crisis, economic growth, economists, european economy, financial system, Global Economy, inflation, interest rates, loans
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