Economic growth is projected to decline gradually to 6.2% by 2017. The announced infrastructure stimulus measures will help overall investment, but adjustment in several heavy industries is set to continue and this stimulus is not sustainable in the longer term. Real estate investment is bottoming out, but working off housing inventories will take some more time. Consumption is set to remain robust. Food and services prices are rising, but the absence of price pressures in other areas will keep consumer price inflation low.
Monetary and fiscal policies should accommodate the ongoing re-balancing of the economy, which will lead to more sustainable and inclusive growth. Spending should be targeted at areas that promote long-term inclusive growth, such as extending the social safety net, upgrading skills and ensuring equal access to public services. Pension reform should be stepped up to safeguard fiscal sustainability.
Meeting the commitment to increase the share of non-fossil fuels in primary energy consumption to about 20% and to have carbon emissions peak by 2030 will be aided by weakening growth and restructuring of the economy. A national cap-and-trade carbon emissions system, to be rolled out from 2017, can meaningfully reduce emissions only if it raises the cost of polluting sufficiently for the polluter to cut output, switch to new technology or reduce emissions in other ways.