OECD rates China as faring best among emerging economies

Sold on gold: buying accessories in Taiyuan, Shanxi province – the OECD predicts that a “small fiscal stimulus” will revive Chinese domestic demand and help push the country’s GDP growth from 7.7 per cent this year to 8.2 per cent in 2014. photograph: jon woo/reuters

Sold on gold: buying accessories in Taiyuan, Shanxi province – the OECD predicts that a “small fiscal stimulus” will revive Chinese domestic demand and help push the country’s GDP growth from 7.7 per cent this year to 8.2 per cent in 2014. photograph: jon woo/reuters

 

In the latest economic forecasts from the Organisation for Economic Co-operation and Development, China fared best among emerging-market economies as it adjusts policy to confront a changing global outlook.

Chinese GDP will rise 7.7 per cent this year and 8.2 per cent in 2014 as a “small fiscal stimulus” revives domestic demand, the Paris-based OECD said in its semi-annual report, driven by stronger domestic demand. “Growth is picking up and inflation remains low, domestic demand has led the turnaround,” it said.

However, the OECD said Beijing needed to speed up the process of structural reforms to help boost domestic consumption, as economic expansion still relies heavily on investment.

“With the economy recovering, there is now a favourable window to push forward with structural reform, in particular financial liberalisation, encouraging labour mobility and tax reform,” the OECD said.

The OECD welcomed the recent reform plan, but did warn that certain reforms may have some short-term negative impact on the economy. And the OECD also sees downside risks in China’s public debt problem, which lingers from China’s massive stimulus programme during the global financial crisis in 2008-2009.

“There are also downside risks, notably stemming from local public debt. Mishandled defaults, were they to occur, might jeopardise the health of the banking system and confidence in capital markets,” it added.

OECD chief economist Pier Carlo Padoan said in an interview with Bloomberg: “What sets China apart is that it has been growing because of structural change as the government addressed the economy’s weaknesses quickly. It’s becoming more and more of a middle-income country.”

The OECD predicted China’s consumer inflation will ease to 2.4 per cent in 2014 from 2.5 per cent this year.

The volume of China’s exports of goods and services will grow 6.8 per cent in 2014, easing from 8.8 per cent this year, while import growth could slow to 9.2 per cent from 9.8 per cent.

Expansion in India
Elsewhere, the OECD sees India’s economy expanding 3.4 per cent this year and 5.1 per cent in 2014, down from 5.7 per cent and 6.6 per cent previously.

“Most of the emerging economies have underlying fragilities that mean they cannot continue growing as they used to,” said Padoan.

“They used to be an important support engine for global growth in bad times. Now the reverse is true and advanced economies can’t be said to be in very good times again.”