ADB lowers China's 2012 growth prediction

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The ADB made the revised prediction in the newly published Asian Development Outlook Supplement. The agency predicted in April that China's gross domestic product would increase by 8.5 percent in 2012 and 8.7 percent in 2013.

The ADB said China has seen a fall in net exports, industrial production and fixed¹ asset investment, although government spending on health, education and large infrastructure² projects are expected to boost the economy.

As the country moves to a more sustainable growth model, growth may slow down more than expected, said the report.

"In this case, we're still confident that there will be no hard landing for China's economy," Robert Wihtol, director-general of ADB's east Asia department, said Thursday.

Wihtol said that although downside risks are increasing for China in the short-term, China's sound fiscal³ position and potential for further monetary⁴ expansion "should ensure a soft landing for the economy.""China's economic growth is estimated to moderate in the first half of 2012 and recover later in the year, underpinned⁵ by an expansionary policy stance," said Wihtol.

China on Monday announced that the inflation rate for the first half of the year was 3.3 percent, with the consumer price index (CPI), a main gauge⁶ of inflation, easing to a 29-month low of 2.2 percent in June, driven by falling food prices.

Wihtol said less inflationary pressure allows China's policymakers to focus on stabilizing⁷ growth, which will provide room for further stimulus⁸ measures.

Due to the weak economy, China lowered benchmark one-year interest rates two times in the first half and started work on liberalizing interest rate margins⁹.

Wihtol said given the current inflationary prospects¹⁰, further quantitative¹¹ easing will likely take place in the months ahead,particularly through additional reductions in the reserve requirement ratio.

Premier¹² Wen Jiabao said earlier this week that it is important to promote reasonable growth in investment to stabilize¹³ economic growth.

"It's important for China to maintain reasonable investment in order to meet short-term challenges," said Wihtol.

But Wihtol stressed that it is also important for the government to keep its eyes on the mid- and long-term target of economic rebalancing and restructuring.

China should direct its transformation¹⁴ toward a more sustainable development pattern to avoid the "middle income trap," he said.

The National Bureau of Statistics (NBS) is set to update figures for China's gross domestic product for the second quarter on Friday. Its GDP growth eased to a near-three-year low of 8.1 percent in the first quarter and is widely expected to slow for a sixth straight quarter in April-June.

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