China’s annual economic growth is likely to slow to 6.8 percent next year from an expected 6.9 percent this year, the People’s Bank of China said in a working paper published on Wednesday.
The world’s second-largest economy still faces downward pressure and the impact of fiscal and monetary policies that were rolled out this year will be evident by the first half of 2016, the central bank said in the research report.
“Although downward pressures on growth will persist for a while due to overcapacity, profit deceleration, and rising non-performing loans, we expect that the number of positive factors will gradually increase in 2016,” it said.
Recent appreciation in the yuan’s real effective exchange rate (REER) has put pressure on China’s exports, the central bank report said, adding that keeping the yuan’s trade-weighted exchange rate relatively stable could help exports.
Meanwhile, the Chinese Academy of Social Sciences (CASS), a top government think tank, predicted in its “blue book” the economy could expand at a slower pace between 6.6 percent and 6.8 percent in 2016 due to weak external demand and cooling domestic investment.
The think tank recommended that China should widen its fiscal deficit to 2.12 trillion yuan ($327.6 billion) next year from a planned 1.62 trillion yuan in 2015, keeping the deficit to GDP ratio within the warning level of 3 percent.
“It’s quite necessary for China to increase strength on its fiscal policy as the economy faces downward and deflation pressure,” said Li Xuesong, an economist at CASS, told a media conference.
China’s Vice Finance Minister Zhu Guangyao said last month that economists the world over should reconsider what constitutes a danger zone for deficit-to-GDP ratios, in comments that some analysts took as a hint of more aggressive stimulus to come.
The government has embarked on its most aggressive policy easing since the depths of the global financial crisis, including six interest rate cuts since November 2014, in a bid to hit its economic growth target of around 7 percent this year.
The central bank expects China’s fixed-asset investment, a key driver of the economy, to grow 10.8 percent in 2016 from this year, as property investment gradually stablises, according to the report written by Ma Jun, the bank’s chief economist, and other central bank economists.