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China economic growth seen slowing despite policy easing
October 15, 2015 / 9:09 AM / 2 years ago

China economic growth seen slowing despite policy easing

Vehicles drive on the Guomao Bridge during the evening rush hour in Beijing, September 3, 2014. REUTERS/Jason Lee

BEIJING (Reuters) - China’s economic growth is expected to slow to 6.5 percent in 2016 from an expected 6.8 percent in 2015, even as the central bank eases policy further to ward off a sharper slowdown, a Reuters poll showed.

A 25-basis-point reduction in benchmark interest rates and another 50 basis points of cuts in banks’ reserve requirement ratio (RRR) are expected by year-end, analysts surveyed by Reuters said.

In a bid to stoke activity, the central bank already has cut lending rates five times since November to 4.60 percent, and lowered the amount of cash that the biggest banks must hold as reserves to 18.0 percent.

But some analysts believe such policy moves have not been as effective as in the past when the economy was more tightly controlled and debt levels were much lower.

The central bank is expected to cut reserve requirements by a further 150 bps in 2016 but keep interest rates unchanged, the poll showed.

The world’s second-largest economy is forecast to grow 6.8 percent this year, cooling from 7.3 percent in 2014 and the slowest pace in a quarter of a century, according to the median forecast of 62 analysts.

Growth is expected to slow further to 6.5 percent in 2016.

The forecasts are lower than a previous poll in July, when analysts thought the economy would grow 7 percent in 2015 - in line with the government’s target - and 6.7 percent in 2016.

Moderating economic growth is expected to keep price pressures muted. Annual inflation is forecast to average 1.6

percent this year, versus the government’s 2015 target of 3

percent, before quickening to 2 percent next year.

“Monetary policy will be loosened as the economy faces downward pressure, and easing inflation will create bigger room for monetary policy loosening,” Xu Gao, chief economist at China Everbright Securities, said in a research note.

Weak demand at home and abroad and a cooling property market have weighed on activity, while a government anti-corruption campaign has slowed new projects and dampened consumption.

Chinese leaders have been trying to reassure global markets that Beijing is able to manage the world's second-largest economy after a shock devaluation of the yuan CNY=CFXS and a summer stock market plunge fanned fears of a hard landing.

The government has quickened spending on infrastructure and easing some curbs on the cooling property sector, which have succeeded in reviving weak home sales and prices but have not yet reversed a sharp decline in new construction.

Data on Oct. 19 is expected to show China’s economic growth slowed to 6.8 percent in the third quarter, the weakest since the global financial crisis, putting pressure on policymakers to roll out more support measures as fears of a dramatic slowdown spook investors.

Reporting by Kevin Yao, Meng Meng in BEIJING, SHANGHAI Newsroom, and Shaloo Shrivastava in BENGALURU; Editing by Kim Coghill

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