China 2012 growth forecast lowered to 8.3%: BBVA

Growth projections could have been cut further if policy easing had been slow to come.

China is warming up to the idea of a looser monetary policy in the form of emergency interest rate cuts should the global weakness intensifies. Its fiscal responses including household handouts and subsidized housing are also viewed favorably.

"China’s economy continues to slow under the influence of weaker external demand. However, growth is being supported by robust domestic demand and a gradual loosening of the policy stance. We are lowering our growth projections only modestly, to 8.3% and 8.7% in 2012-13," said BBVA in its China Economic Outlook report.

"The shift to a looser policy stance is being facilitated by a decline in inflation. We anticipate further reductions in the RRR, along with interest rate cuts if the external environment weakens. Fiscal support will consist of subsidies to households and construction of affordable housing," it added.

"Risks remain tilted to the downside. The main risk is from the uncertain global environment. Domestic financial fragilities are being addressed, but bear watching. While a hard landing cannot be ruled out, we continue to believe the risk is low," it said further.

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