China’s economy will slow in 2012, prompting policy makers to reduce interest rates and loosen lending restrictions, said Nouriel Roubini, the economist who predicted the 2008 financial crisis.
“It’s going to be a significant growth slowdown this year,” Roubini, co-founder of Roubini Global Economics LLC, said in a Bloomberg TV interview today. “Housing is deflating. Export growth is slowing down. If they don’t do something -- stimulus in monetary and fiscal credit -- the risk is that the growth will slow down well below 8 percent.”
China’s gross domestic product increased 9.2 percent last year, matching the slowest pace since 2002, as the housing market cooled and the European debt crisis eroded export demand. The central bank cut the amount banks must keep in reserve last month for the first time in three years, and the government has allowed its five biggest banks to boost first-quarter lending and may relax capital requirements, people with knowledge of the matter said this week.
The world’s second-largest economy, China will further reduce the reserve-requirement ratio for banks in the first half of this year and reduce benchmark rates for the first time since 2008 to “jump start the economy,” Roubini said. Growth below 8 percent will create “political noise” as China undergoes a leadership transition, he said.
China is in the midst of a planned shift in its ruling elite that will culminate late this year at the 18th Communist Party Congress. The meeting, which occurs every five years, will probably see Vice President Xi Jinping tapped as China’s next president and Li Keqiang, currently vice premier, put forward as prime minister.
Roubini, a professor at New York University, predicted the U.S. housing bubble before the market peaked in 2006, while failing to foresee a rebound in global stocks in 2009.
Home prices fell last month in 52 of 70 Chinese cities from November, according to government data released on Jan. 18. Exports increased 13.4 percent in December from a year earlier, slowing from 24.5 percent in August, according to customs bureau data.