ANZ sees China GDP growth moderating to 7.2% in 2014

~~SINGAPORE – in a research note, ANZ Bank is maintaining its forecast that China’s growth will moderate to around 7.2% next year on the premise that the 2014 growth target could be lowered to 7% in the final two years of China’s 12th five year plan to allow room for structural reforms and to address the twin problems of over-capacity and out-dated capacity, especially in heavy industries.

ANZ says that as growth is roughly consistent with China’s potential, it expects inflationary pressures to remain manageable in 2014. However, non-food inflation, especially rental costs, could pick up amid rising property prices, putting pressure on the CPI.
“Against this background, the central bank is likely to maintain the current policy environment, but will continue to enhance its liquidity management operations,” ANZ says. “The de-leveraging process Chinese commercial banks are undergoing suggests liquidity conditions may not improve much.
“Large capital inflows and the trade surplus suggest the RMB will still be under pressure to appreciate, and we forecast the RMB to reach 5.98 to the US dollar by end-2014. The key risk surrounding this forecast is whether China will encourage private capital outflows. If such a policy were allowed, we see the risk of our RMB view to be biased to the weak side.
“Property prices will remain elevated under the current monetary policy framework in spite of the existing property curb policies. If urban household registration reforms can be quickly implemented in small cities, it could help third- and fourth-tier cities digest their large stock of unsold housing, which in turn would help improve their fiscal conditions and reduce the risk of Local Government Financing Vehicle (LGFV) default.
“While we believe downside risks have been mitigated after the Party’s 3rd plenum, policy execution is also key to ensuring the success of reforms. In the near term, the authorities will have to address the rising cost of funds, financial risks embedded in the shadow banking system, and those associated with local government financing platforms. More broadly, the authorities will also need to get their policy sequencing right in order to mitigate downside risks to the economy.” www.live.anz.com (ATI).