China: Scope for social spending
After moderating in the second half of 2006, economic growth has accelerated again and is expected to reach almost 11.5% in 2007, leading to a widening of the output gap. The inflation rate is projected to increase to around 4.5% in 2007 and stabilise thereafter as weaker food prices are estimated to offset accelerating non-agricultural prices. Despite continued strong export growth, output is likely to slow in 2008 and 2009 as imports accelerate. Nonetheless, the current account surplus is projected to rise from around $350 billion in 2007 to over $500 billion in 2009, passing from 11.25 to 11.75% of GDP.
The balance of risks suggests that some tightening of macroeconomic policies is needed to reduce overheating, help ease inflation and calm equity markets. Rebalancing growth away from net exports continues to be a key concern, implying that a faster appreciation of the currency should be part of this tightening. There is also scope to redirect public spending to meet pressing social needs.
No. 264/265, December/January 2008
• OECD Economic Outlook No. 82, December 2007
• Visit www.oecd.org/china
• All OECD Observer articles on China