World Bank raises China 2017 growth forecast, maintains 2018 outlook

Workers rest after lunch at a construction site in Shanghai, China, January 19, 2016. REUTERS/Aly Song

BEIJING (Reuters) - The World Bank on Tuesday raised its forecast for China’s economic growth in 2017 to 6.8 percent from 6.7 percent it projected in October, as personal consumption and foreign trade supported growth.

But the Washington-based lender kept its forecast for China’s 2018 and 2019 GDP growth unchanged at 6.4 percent and 6.3 percent, respectively, due to less accommodative monetary policy and the government’s effort to rein in credit and control leverage.

The key downside risks to the forecast are the still rising leverage of the non-financial sector and uncertainty around housing prices.

“Despite the recent slowdown, credit continues to grow considerably faster than GDP. Outstanding bank loans reached 150 percent of GDP in November 2017, up from 103 percent at the end of 2007,” the World Bank said in its China Economic Update.

China’s economy grew at a faster-than-expected 6.9 percent over the first nine months of the year, but Beijing’s campaign to reduce risks in the financial sector has pushed up borrowing costs, raising concerns GDP growth could take a hit next year.

But strong growth so far this year has given policymakers an opportunity to accelerate deleveraging, which is “likely to come at the cost of slower GDP growth in the near term but will improve China’s long-term economic prospects,” the World Bank report said.

External risks to China’s economy include the potential for more restrictive trade policies in advanced economies, and geopolitical tensions, the report said.

Reporting by Elias Glenn; Editing by Jacqueline Wong