MNI: OECD Raises Outlook for China GDP Growth

--Sees 6.8% and 6.6% GDP for 2017, '18

     BEIJING (MNI) - The Organization for Economic Cooperation and Development

on Tuesday upgraded its expectations for China's economic growth this year and

next to 6.8% and 6.6%, respectively, from its June forecast of 6.6% and 6.4%,

citing the brisk pace of infrastructure investment and the ongoing rebalancing

of China's growth model.

     The OECD also said in its twice-yearly "Economic Outlook" that it expects

growth in 2019 to soften to 6.4% as export decelerate.

     The OECD had signaled in an interim forecast in September that it would be

upgrading its economic growth outlook for China.

     Although it said China's exports would slow over the coming years, it added

that growth should be bolstered by demand for services, "in particular on

account of tourism and foreign intellectual property." It also said

infrastructure would remain strong and that housing investment would slow on the

back of tighter restrictions, but added that housing prices would remain

elevated as long as supply is constrained. 

     "Industrial profits are recovering on the back of higher producer prices

and surging demand for construction machinery as large infrastructure projects

move ahead," the report said. "Strong infrastructure investment has more than

made up for capacity reductions in coal, steel, aluminum and other industries

suffering from excess capacity."

     China's monetary policy stance "will continue to be neutral with a

tightening bias" but "selective easing" will be used so small businesses and the

agricultural sector have access to credit, the report said. "Attention is

increasingly shifting towards enhancing financial stability as capital outflows

moderate and the exchange rate is stabilized," it added.

     It also said that shadow banking had been reigned in, and that "more

stringent regulations are to be applied to interbank certificates of deposit,

adversely affecting medium-size banks that heavily rely on this source of

funding."

     At its Communist Party Congress in October, the government stressed that

its economic focus over the coming years would be on financial deleveraging and

boosting domestic consumption.

     The government has targeted GDP growth at around 6.5% this year, although

growth through the first three quarters was 6.9%. The International Monetary

Fund predicted in its World Economic Report in August that China's GDP growth

this year would be 6.8% and 6.5% in 2018. 

     The OECD also upgraded its expectations for world growth to 3.6% this year,

up from its previous forecast of 3.5%, and to 3.7% in 2018, also an increase of

0.1 percentage point from the previous forecast. It also said it expects world

growth in 2019 to be 3.6%.

     The OECD said that although the world economy had strengthened, underpinned

by monetary and fiscal stimulus, "longer-term challenges inhibit stronger, more

inclusive, and more resilient economies."

     "Growth has picked up momentum and the short-term outlook is positive, but

there are still clear weaknesses and vulnerabilities," OECD Secretary General

Angel Gurria said during a press conference to present the results. "There is a

need to focus structural and fiscal action on boosting long-term potential as

monetary policy support is reduced. Countries should implement reform packages

that catalyze the private sector to promote productivity, higher wages and more

inclusive growth."

--MNI Beijing Bureau; +86 (10) 8532-5998; email: vince.morkri@marketnews.com

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