China’s growth is likely to accelerate this year and next as the world’s second-biggest economy weathers a fragile global recovery, according to the Organization for Economic Cooperation and Development.
“China could maintain high, though gradually easing, growth during the current decade,” the Paris-based organization said in Beijing today. Expansion may reach 8.5 percent this year and 8.9 percent in 2014, the OECD said. The economy may overtake the U.S. in 2016, based on calculations that take price differences into account, it said.
China will benefit from increased demand for housing and a pickup in business investment, while export gains stay “subdued,” the group said. Premier Li Keqiang, who took office this month, faces the challenge of sustaining a recovery from the weakest growth in 13 years while reining in excessive gains in consumer and property prices.
“The gradual pick-up in activity provides a strong background for the ambitious reforms China needs to put in place to continue on the road to prosperity,” Angel Gurria, the OECD’s secretary-general, said in a press briefing today in Beijing. “We are encouraged by the new leadership’s policy vision.”
The economy expanded 7.9 percent in the final three months of last year, the first acceleration in two years. Full-year growth of 7.8 percent was the least since 1999.
The global economic environment “remains fragile” and China can undertake “further cautious monetary and fiscal stimulus” if needed, the OECD said. An “appropriate response” for China would be to lower interest rates in the event of “worse-than-expected developments” abroad, especially in the euro area, the organization said.
China’s economy, now the world’s second-biggest, is on course to overtake the U.S. as the largest around 2016 as measured by purchasing power parity, which accounts for differences in price levels, the report said. Growth may average 8 percent in per capita terms this decade, the OECD said.
Maintaining rapid economic growth in China “will require further large-scale urbanization,” the OECD said. The group also called for “renewed reform momentum” on policies such as moving toward market-determined interest rates and allowing greater exchange-rate flexibility, it said.
Asked about the biggest risk to China’s economy, Gurria said in a Bloomberg Television interview today that “they have to continue with reforms, so the biggest risk would be that they stop the reforms.”
Monetary policy can stay “relatively accommodative” in the near term while guarding against inflation risks, the OECD said.
China’s consumer prices rose a more-than-forecast 3.2 percent in February from a year earlier, the most in 10 months, prompting central bank Governor Zhou Xiaochuan to say that the nation should be on “high alert” over inflation.
Zhou, reappointed as central bank governor this month, said on March 13 that monetary policy is no longer relaxed and is relatively neutral now.