HONG KONG, Nov 9 (Reuters) - China’s economic growth is likely to slow to 6.5 percent next year and cool further to 6.2 percent in 2017, the OECD said, suggesting that policy makers will have their work cut out as the Asian giant adjusts to lower growth from its recent frenetic pace.
In its bi-annual economic outlook report released on Monday, the Organisation for Economic Co-operation and Development cautioned that Beijing’s fiscal stimulus is not sustainable over the longer run as it risks crowding out much needed private investment.
“Additional fiscal stimulus would prop up short-term growth at the cost of increasing imbalances and crowding out private investment,” the report said.
The OECD, which expects China’s economy to grow 6.8 percent this year, also noted that real borrowing costs have continued to rise amid persistent declines in factory gate prices, which is squeezing firms’ profits and increasing their debt burdens.
The world’s second-largest economy grew 6.9 percent in the third quarter from a year earlier, the weakest pace since the global financial crisis, hurt partly by cooling investment and prompting the central bank to cut interest rates for the sixth time in nearly a year.
Besides the monetary easings, the government has been ratcheting up fiscal spending to support infrastructure investment in an effort to put a floor under the slowing economy.
President Xi Jinping has said that China must keep annual average growth of no less than 6.5 percent in the next five years to hit the country’s goal of doubling 2010 gross domestic product and per capita income by 2020.
For 2015, the government is targetting economic growth of around 7 percent, which would be the weakest in a quarter of a century.
In September, the OECD forecast China’s economic growth of 6.7 percent this year and 6.5 percent in 2016.
China’s surprise devaluation of the yuan on August 11, fueled a wave of capital outflows on fears the economy might be slowing more sharply than thought and on worries of a possible interest rate rise by the U.S. Federal Reserve.
The central bank has intervened heavily to keep the yuan steady after it devalued the currency by nearly 2 percent.
The OECD said recent government measures, including stricter checks on foreign exchange purchases by firms and individuals and a crackdown on illegal currency transactions, may have curbed capital outflows for now.
“Narrowing of the interest differential and slowing growth, however, may lead to further capital outflows and pressure on the exchange rate,” it said.
Reporting by Kevin Yao; Editing by Shri Navaratnam