Deflation alert in China, central bank lowers estimates
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Deflation alert in China, central bank lowers estimates

Deflation alert in China, central bank lowers estimates

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(AGI) Beijing, June 12 - The threat of deflation is looming inChina. Economists of the People's Bank of China, the country'scentral bank, have revised down the inflation estimates forthis year from a forecast 2.2 percent, lower than the 3 percentceiling established by the government, to 1.4 percent. Theopinion of experts, which is confirmed on the Bank of China'swebsite, does not coincide with the official opinion of centralbank governed by Zhou Xiaochuan, although it is a signal foranalysts that China will need further monetary easing measuresduring the next few months, while awaiting to feel the effectsof the measures taken up to now. Inflation fell to 1.2 percentin May from 1.5 percent in April, thus re-opening the debate onthe need for Beijing to pass new measures if it wants to avoidthe risk of deflation. The analysts of the People's Bank OfChina have also revised down the 2015 growth estimates from 7.1percent to 7 percent. The downward adjustment coincides withthe lower growth estimates for emerging Countries recentlypublished by the World Bank. China's new growth estimate for2015 is 4.4 percent against the previous estimate of 4.8percent issued last December. This year, thanks to lower oilprices on world markets, India is expected to outperform Chinain growth, with its GDP expected to rise 7.5 percent. Thistrend is predicted to continue until 2017. Between November2014 and May 2015, the central bank cut interest rates threetimes and banks' legal reserve provisions two times in order tofacilitate loans and boost the economy, which grew 7 percentduring the first quarter of 2014, an impressive rate comparedto the world's other economies but its smallest since 2009.According to the Bank of China's chief economist Ma Jun -formerly at Deutsche Bank - it will take between six and ninemonths to see the effects of the quantitative easing measurespassed during the last few months. "We have reasons to expectsome modest recovery in sequential growth in the second half ofthis year," the analysts said in a report. Among the factorsdriving the recovery, the analysts mentioned the growingstabilisation of house prices and growing exports. Theforecasts of the Bank of China experts are not endorsed byforeign analysts who fear a slowdown in China's economy in thesecond half of the year. "The financing costs of the realeconomy remain high. We expect more policy easing measures,including a 50 basis point reserve ratio cut in the comingweek," Julia Wang, HSBC's greater China economist, wrote on theFinancial Times this week. Among the thorniest issues hinderingan enduring recovery is domestic consumption, which is stillrather slow, and above all the slump in the real-estate marketand the drop in the price of commodities, analysts said. (AGI). .
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