OECD cuts China growth outlook, urges reform roadmap


The OECD on Wednesday slashed its forecast for China's 2013 economic growth to 7.8 percent, the same as last year's actual rate, from a previous 8.5 percent, citing weakening domestic demand amid global uncertainties.

Growth in the world's second-largest economy may recover to 8.4 percent in 2014 on increased policy support, the Organisation for Economic Co-operation and Development (OECD) said its latest report on the global economic outlook.

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In March, the OECD forecast China's economy could expand 8.5 percent this year and 8.9 percent in 2014 - the most upbeat assessments of any of the major multilateral institutions.

China's economic growth slowed to a 13-year low of 7.8 percent in 2012, undermined by tepid demand in the European Union and the United States - the two biggest export customers.

Earlier on Wednesday, the International Monetary Fund cut its growth forecast for China this year to 7.75 percent from a previous 8 percent, citing a weak world economy and exports.

Many private economists have already been lowering their estimates after soft factory output and investment performance data for April and weak factory activity in May.

Weaker domestic demand has become the main drag on growth into 2013 as a marked easing in inventory accumulation slows capital formation, while Beijing's campaign targeting official extravagance cools consumption, the OECD said.

"In 2014, faster world trade may also boost the economy, bringing growth to 8.4 percent. With more limited export market share gains than in the past, the current account surplus may shrink anew," the OECD said.

It predicted that China's current account surplus as a share of GDP could fall to 1.4 percent in 2014 from an expected 2.3 percent in 2013.

China's annual economic growth slowed to 7.7 percent in the first quarter from 7.9 percent in the previous quarter, but the OECD expects growth to pick up by the middle of 2013 due to strong growth in credit and more supportive fiscal policy.

Low inflation will leave room for the central bank to relax monetary policy while fiscal policy could remain expansionary, it said.

China's consumer inflation will pick up slightly to 2.4 percent in 2014 from 2 percent this year, the OECD predicted.

China also faces potential risks stemming from the property market and the rise in alternative financing, it added.

The government has set a 2013 growth target of 7.5 percent, a level Beijing deems sufficient for job creation while providing room to deliver reforms to help sustain growth.

China's new leaders have pledged to quicken financial reforms and gradually free up the rigid residence registration system, or hukou, to allow migrant workers to enjoy basic welfare services outside their official place of residence.

The OECD called or a detailed roadmap for reforms.

"A detailed time path for reform implementation is needed, notably in the areas of interest rate deregulation, increased labor market flexibility through the lowering of barriers to internal migration and expanding the supply of building land," it said.

(Editing by Jonathan Standing & Kim Coghill)