From 7.7% growth in 2013,
A rebalancing of growth from investment to consumption and from industry to services continues, but there are challenges and rebalancing is slow.
The prospect of 2014 growth falling below 7.5% will likely be met with accommodative fiscal and monetary policies, for which
The fiscal policy measures announced in April will help the authorities to reach the indicative growth target of around 7.5% this year, but will likely add to current imbalances and vulnerabilities, the bank noted.
After a slowdown in the first quarter of 2014, economic activity including industrial production showed signs of a pick-up,
The recent acceleration is likely to continue into the next two quarters, reflecting strong consumption, a recovery of external demand, and new growth supporting measures, including infrastructure investments and tax incentives for small and medium-sized enterprises, the bank said.
The lender, at the same time, identified several risks to the gradual adjustments in
Secondly, an abrupt change in cost of capital for sectors like real estate could reduce economic activity. Finally, the recovery in exports may not materialize if growth in advanced countries weakens.
The bank urged authorities to focus on fiscal and financial sector reforms. It noted that while these reforms may reduce growth in the short run, policies that promote competition, lower entry barriers to protected sectors and reduce administrative burden on businesses will help dampen the impact, and create a more market-oriented economy.
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