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China's economy should grow by 8% this year and next, but significant risks remain
The Economist Intelligence Unit has revised its economic forecasts for China in 2009-10, and now believes that the country will achieve 8% GDP growth in both years. With real GDP growth having reached 7.9% year on year in the second quarter of 2009, China already appears on course to achieve the government's aim of 8% average growth this year. However, growth in 2010 remains subject to significant upside and downside risks. The outlook is obscured by the dominant role that government policy is set to play next year, and by the high degree of uncertainty with regard to the outlook for the global economy.
Our forecast for next year reflects an assumption that the government will tighten credit and fiscal policy moderately. Such an approach would be likely to have negative side-effects. Asset-price inflation will be stimulated by a credit and fiscal policy stance that will be kept loose to offset the effects of the weak global economy on the export sector. Several local governments in China will face growing fiscal strains that may require the central government to bail them out. China's fiscal deficit in 2009-10 will in any case be larger than at any point since the start of the reform era in 1979...
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