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Citigroup: China's soft landing likely

(Agencies)
Updated: 2008-12-04 17:41

China's stimulus package should ensure a "soft landing" for the economy next year, but its restructuring efforts could lead to lower rates of growth over the longer term, Citigroup said in a research report.

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Citigroup estimates that China's economy will grow by 8.2 percent in 2009 and by 8.5 percent in 2010 as it braces itself against the impact of the global recession, but the slowdown could signal the beginning of a longer-term trend.

"China's next development stage would probably feature declining current account surplus, a more rational investment environment and slower productivity growth, yielding a trend growth of about 8-9 percent," it said.

Citigroup said that the breadth of China's slowdown has been "alarming". Demand is collapsing, firms are slashing output and selling off their inventories, and consumer spending is also showing the first signs of slowing down.

China's fiscal expansion plans are only a temporary solution, and recovery is likely to depend on the stabilization of financial markets and the global economy as a whole, it added.

But "doubts about policy effectiveness are likely overdone, as the State sector still has command over vast capital and resources, while the banking system remains healthy and could cushion the slowdown," the report said.